Chapter 1:Introduction to Restitution

    1. Introduction to Law and Equity

    2. Examples of Restitution in Law and Equity

Chapter 2:Benefits Conferred Voluntarily

    1. Introduction

    2. Benefits Conferred Upon Request

      1. Contract and Quasi Contract

      2. Misunderstanding: More of Contract and Quasi Contract

    3. Benefits Conferred without Request

      1. In General

      2. Benefits Conferred in Protection of Existing Property Rights

Chapter 3:Benefits Conferred Through Compulsion

    1. Benefits Conferred Through Durress

      1. In General

      2. Effectiveness of Means Used

      3. Wrongfulness of Means Used

    2. Benefits Conferred Through Plaintiff’s Performance of Defendant’s Duty to a Third Person

Chapter 4:Benefits Conferred by Mistake

    1. Payment of Money

    2. Improvements of Defendant’s Property

    3. Goods and Services

Chapter 5:Bona Fide Purchase and Related Defense

    1. Legal and Equitable Title

    2. Land Transactions: Conveyances and Mortgages

    3. Payments to Creditors and Assignees

    4. Benefits Obtained Through Act of and Agent

    5. Estoppel, Change of Position and Laches

    6. Double Dipping: Collateral Benefits

Chapter 6:Benefits Obtained Through Wrongdoing

    1. Interference with Tangible Property

      1. Legal Remedies

      2. Equitable Remedies

      3. Equitable Remedies: Mingles Funds: The Rule of Jessel’s Bag

      4. A Closer Look at Equitable Property Rights

    2. Interference with Intangible Property

      1. Copyright

      2. Trademarks

      3. Ideas

      4. Rights of Publicity

    3. Breach of Fiduciary Duty

    4. Interference with Expectations

      1. In General

      2. Plaintiff’s Connection with Benefit Received by Defendant from Third Person

Chapter 7:Benefits Obtained Through Misrepresentation

    1. Damages and Restitution Compared

    2. Nondisclosure

    3. Disaffirmance in law and Equity

    4. Remedies Upon Affirmance: Standards of Tort Liability

    5. Problems of Agency

    6. Further Problems of Restoration Upon Disaffirmance

Chapter 8:Benefits Conferred In Bargain Transactions

    1. Defendant in Breach

      1. Introduction: Damages and Restitution Compared

      2. Restitution

      3. Problems of Rescission: In General

      4. Problems of Rescission: Sales of Land

      5. Problems of Rescission: Sales of Goods and Intangibles

      6. Loans

    2. Plaintiff in Breach

      1. Service Contracts

      2. Land Sale Contracts

      3. Construction Contracts

    3. Impossibility of Performance

    4. Unenforceable Contracts: The Statute of Frauds

      1. In General

      2. Constructive Trust: Transactions Between Plaintiff and Defendant

      3. Constructive Trust: Defendant as Purchaser from Third Person

      4. Constructive Trust: Plaintiff as Intended Donee of Third Person

    5. Unenforceable Contracts: Illegality

      1. In General

      2. The Special Problem of Municipal Corporations

Chapter 9:Mistake in Bargain Transactions

    1. Mistake in Assumptions of Fact

      1. Mutual Mistake

      2. Unilateral Mistake

    2. Mistake in Expression

      1. Basic Issues: Parol Evidence and Statute of Fraud

      2. Reformation of What? Search of the True Agreement

      3. Fraud or Inequitable Contract

    3. Mistake in Performance: Restitution

      1. In General

      2. Land Sale Contracts

    4. Mistake of Law

Chapter 10:Mistake in Donative Transactions

    1. Action by Donor

    2. Action by Donee

Chapter 11:Introduction to Restitution

Introduction to Law and Equity

      1. Windeyer, Lectures of Legal History

Remedy based on promise …. Contracts

Remedy based on harm …. Torts

Remedy based on unjust enrichment …. Remediesfocuses on benefit reaped

Remedy in rem remedy focuses on a specific asset and gives the successful π a security interest

Remedy in personam is a judgment, which is only an obligation to pay.

Restitution is a supplemental remedy to contract remedy, tort remedy, etc…

focuses on benefit conferred to the without compensation for it.

Quasi-Contract value of benefit accruing to the

Common Law Courts Concerned with fraud in execution. E.g. Sign a K, thinking it’s a birthday card, is void.

Courts in Equity Concerned with fraud in consideration (inducement), you get an equitable remedy. Can’t get equitable remedy unless legal remedy in inadequate.

Jury Trials are only applicable to common law suit. Constitutional right is only for Federal Court. Right to jury trial at state level must be found in the state’s constitution.

      1. James, Civil Procedure

Crary v. Goodman

π sued to recover possession of real property relying on a deed as the foundation for his action. The lower court rejected ’s proof that the land was equitably his, having been omitted by mistake from a prior deed to him.

Court States New code (1848) that merged law and equity, abolished the distinction between actions at law and suits in equity, and prescribes a single form of a civil action, the question in an action is not whether the plaintiff has a legal right or and equitable right, or the an equitable or legal defense against π’s claim; but whether according to legal and equitable rules and law, the shows that the π should not have the relief sought after.

π Legal Claim

Equitable defense, OK!!!

Merex v. Fairchild Weston Systems (2d Cir. 1994)

 planned to sell military equipment to China, but bc no connections, engaged π to broker sale. Dispute centers on how was to compensate π for middleman services. π claims that orally agreed to pay 8% commission on sale. wanted a resale type agreement bc didn’t want risk of collection from China, and negotiation broke down. Later w/o π, consummated direct sale with China. refused to pay π any commission.

π sought damages on theory of break of K, quantum meruit, and promissory estoppel. π sought jury trial on all issues. TC, by bench trial, agrees with that claims were barred bc of SOF. π appeals saying that promissory estoppel is legal claim, therefore gets jury trial.

Ct Uses 2-fold analysis to see if legal or equitable claim/ defense

              1. Whether claim is legal or equitable in 18th England, bc 7th Amendment guaranteeing jury trial was strictly for legal claims and you determine if legal or equitable claim by looking at English CL (English CL influence in American jurisprudence) when 7th amend was added.

              2. Whether remedy sought is legal or equitable in nature.

Court must balance the 2, giving more weight to the 2d.

Analysis 1st Prong

Promissory estoppel is used in decision of courts of CL from the very beginning of actions for assumpsit. A detriment has always been deemed valid consideration for a promise if incurred at the PR’s request. Promissory estoppel has its root in equitable estoppel. Court feels that it is more close to Equity, because here, its being invoked to circumvent SOF.

2d Prong

π is asking for expectation damages (legal remedy). But here he’s asking for equitable relief, bc trying to get damages that π is not legally entitled to, but is asking chancellor to prevent unjust enrichment. π is asking for equitable principle to give him legal relief.

Therefore π doesn’t have right to jury.

Davidson v. Brown

Bill in equity to cancel a deed conveying to Davidson (D) a lot owned by Brown (B). B says that she was tricked into signing deed on D’s representation that the dox was a K for an exchange of land, and that D also fraudulently represented that land was free from all encumbrances. D says that B voluntarily and knowingly deeded land to him and knew of encumbrances.

Bill state 2 grounds for relief:

              1. D fraudulently misrepresented as to the nature of the instrument which he induced complainant to execute; and

              2. D fraudulently misrepresented that his lot had no encumbrances.

1st Count Legal remedy because this is fraud in inducement, legal action. If B shows that there was fraud in execution and that she had possession when she filed bill, then K is void.

2d Count Fraud as to inducement is equitable c/a, therefore voidable only. Equity will declare rescission of K and the surrender and cancellation of deed, or reconveyance of property, regardless if B has possession or not

Rule Can get equitable relief will lie only when π’s legal remedies are inadequate.

City of Boston v. Dolan

City brings action against its treasurer to compel accounting for conflict of interest transactions. contends that bill will not lie bc π has legal remedy. But bc city treasurer, acted as fiduciary, and as such he could be compelled to account in equity like a trustee, regardless of remedy at law.

Certain relationships are derived from equity.

Ct sustained action in equity against treasurer bc breach FD.

 wants jury trial,

Ct says no because this is breach of FD and therefore equitable type of suit.

Parshelsky v. Palley

2 co-sureties. 1 surety paid obligation, and seeks contribution from other. At law, a surety can recover from his co-surety an aliquot part, calculated upon the whole number, without reference to the insolvency of the other. The right of action as between sureties grows out of the original implied agreement that if one shall be compelled to pay the whole or disproportionate amount, the other will pay such sum as will make the common burden equal. Action for assumpsit, a legal claim. Therefore you get a jury trial.

Law Creditor can get payment from either surety

Equity Surety can get contribution from other surety.

Law said equity rule is better so adopted. Once absorbed into CL, then jury trial.

In NY If absorbed before 1846, then you have a right to jury. See supra.

Banker’s Reserve Life Co. v. Omberson

Insurance co. in breach of K claim is pre-empting beneficiary’s claim by asking court in equity to enjoin from asserting claim against π.

π’s claim That fraudulently induced π to give life insurance. π had TB

π’s motive Avoid jury trial, bc juries don’t like big evil money sucking insurance companies.

 demurred Arguing that π had remedy at law.

Here the rights of the parties are created by K, law, and where there is remedy at law, can’t invoke equity. Fraud has legal remedy, an affirmative defense to payment.

But what about Davidson? Fraud in execution is CL defense, and fraud in inducement is equity defense. Pashelsky, fraud in inducement where performance hadn’t occurred began in equity but moved to CL. Therefore remedy at law is adequate bc can use as affirmative defense, and therefore can’t ask for remedy in equity.

Note 2 Year Incontestability Clause 2 years for insurance co. to cancel policy because of fraud.

SOL for breach of K is 6 years.

Groesbeck v. Morgan

π wants specific performance of land sale K.

Action for specific performanceEquity

Inequitable to give π land even though presence of K. Defense of Laches.

Laches Unreasonable delay in asserting rights that results in substantial change in position.

Here, land increased substantially in value. 27507000.

Laches is an equitable relief. Where you wouldn’t get relief for a legal defense, you could use it against an equitable defense. Once equity gets its grip on someone, it doesn’t let go!!!!!!

Saperstein v. Mechanic’s & FS Bank

Land sale K. Buyer was not able to appear on closing date. Shortly thereafter sold property to 3d party.

Re: Title Closing Date Unless specifically conditioned on, where it is stated that time is of the essence, Equity will allow a reasonable time to close. But only if vendor still has property.

If vendor sells to BFP, then no equitable solution bc can’t convey to π. Equity will not and cannot compel the to break 2d K even if conveyance had not been made. Now only legal remedy is available. In legal stuff, closing date is condition antecedent, and unless there is a waiver, time is of the essence.

Note Case Smythe v. Sturges

Land sale K. P refuses to complete purchase bc expected pipes in purchase. V sues for breach of K (law court). Ct holds no damages because pipes were part of bargain and V had no title to pipes.

If V had sued in equity and asked for specific performance, court would have given specific performance, minus value of pipes.

Golde Clothes Shop Inc. v. Loews

L/T relationship; π had shop, was motion picture co. Clause in lease said that if LL sells property, new LL can terminate lease by giving T 90 days notice. Property is sold and resold. Newest LL brings termination notice.

Issue Does termination clause run with the land?, renew with each sale?

Pro TC agreed with LL, Ct of App said that it didn’t run with land.

Meanwhile, during appeal, tore down and built movie theatre where shop used to be. π brings action for ejectment (big balls), a CL action. Ct π is legal owner of property as lessee and therefore is trespasser. brings equitable defense of hardship, but can’t be defense of legal rights or remedies. Property rights are more sacred than K rights.

Cardozo says “ the order can’t be sustained w/o obliterating an estate and extinguishing a right in property. π didn’t sue in equity and therefore Ct can’t give equitable relief.”

Note Equitable defenses such as undue hardship and laches, are defenses to claims seeking the types of relief formerly available only in courts of chancery, and are not defenses to legal claims.

2 types of “equitable defenses”:

  1. Limited equitable defense that applies only to equitable remedies; and

  2. Complete equitable defenses that apply to legal claim, e.g. Crary v. Goodman, supra.

Sloan v. United Feature Syndicate (NY 1929)

π is writer contracted to write articles in foreign land for 50% of gross proceeds. is publisher. π wants accounting because of failure of to pay for articles.

CL accounting Is really in the jurisdiction of equity. Accounting is allowed for:

  1. Where a fiduciary relationship exists, a relationship of trust and confidence between the parties. E.g. guardian and ward, partnership, or trustee.

  • Here, it is not a fiduciary relationship, but a contractual relationship (creditor relationship). The formula is by which contractual amount is figured out; therefore relationship is legal rather than equitable in nature.

Examples of Restitution in Law and Equity

Keech v. Sandford

Lease held in trust for infant. Lease expires and trustee tries to renew. LL refuses to renew to infant, but will renew to trustee. Substitute trustee sues in equity.

Court says trustee should let lease run out rather than take lease, because rules of fiduciary duty should be strictly pursued here bc here it’s an express trust. Lease should be assigned to infant, trustee should be indemnified for covenants and an accounting for profits made since lease renewal. Lease is held in

This is an equitable C/A here fiduciary can’t profit from subject of his fiduciary duty.

“constructive trust” equitable remedy.

Bize v. Dickason
Lord Mansfield is famous law dude!!!!!!! Created legal doctrine of quasi-K, and assumpsit.

s are assignees in bankruptcy. owed bankrupt dude, and paid debt to , but overpaid. sues to get this amount back in full dollars and not little bankruptcy dollars.

Mistake will create unjust enrichment.

Held It would be inequitable fro other creditors to benefit from π’s mistake. So the difference is returned to π in full dollars.

Rule Where money is paid in mistake, which there was no ground to claim in conscience, the party may recover it back.

Note: However, where a man has paid a debt, which would otherwise have been barred by the SOL, which in justice ought to have paid, though the law will not compel payment, yet the money being paid, the court will not compel repayment.

Legal Remedy to prevent unjust enrichment was General Assumpsit, now Quasi-K to bring this C/A to CL court.

Western Assurance Co v. Towle

Insurance policy provision: Inflated claim, then claim is void.

 filed false claim.

Rule If π had caught , then π had complete legal defense to K (legal) claim and wouldn’t have to pay.

But, π didn’t catch on, and paid in full execution.

Now, π found out about fraud after, and brings action in quasi-k.

    • Quasi-K is legal claim based on equitable principles. Here there is no fraud in the condition (fire) which would require restitution of entire amount, but fraud in the estimate, where unjust enrichment is the overestimate.

Court Example Look at SOL of debt.

After SOL passes, no obligation to pay, but if you do pay, there is no unjust enrichment.

We don’t like forfeiture. The only unjust enrichment was inflated claim, therefore, π can only claim the amount above the actual cost of claim.

Hechter v. NY Life Insurance

Insurance claim payable to client, lawyer gets check, forges signature, and deposits into own account. Check clears, withdraws cash and disappears.

claims 2 C/A against lawyers bank

        1. Tort of conversion can be unwitting and still be guilty for conversion. SOL is 3 years.
        2. If tort results in benefit to tortfeasor, you may waive tort and sue in assumpsit, (quasi-K) and equitable C/A. The benefit to tortfeasor is same as harm to victim. Underlying rights have nothing to do with___________. SOL of assumpsit is 6 years.

Baker v. Carson (before merger of equity)

 is mother-in-law; π is husband of ’s daughter.

 had life estate, daughter had remainder.

Agreement was, if π improves the land, would give π’ wife/ ’s daughter, a life estate.

Fallout, brings action for ejectment.

asks for relief in equity

1. Specific performance of agreement of transfer of land.

 raises defense of SOF.

Part performance detrimental reliance with benefit to adverse party.

Promissory Estoppel detrimental reliance.

Ct. Right or wrong, did not think acts were enough to get around SOF, based on part performance or promissory estoppel.

2. Conditional Injunction, the condition being payment for value of improvement. Because π was not trespasser or officious intermeddler. assured π about clearing of land, and saw it happen. What is the measure of value? Under restitution it is the unjust enrichment, or the benefit to the party and not out of pocket expense.

Suppose land was worth 15k before and 20k after.

What is the amount of restitution?

What is the unjust enrichment to ?

What is the value of improvement to who had life estate?

Chapter 12:Benefits Conferred Voluntarily


What are the traditional opposites of benefits conferred voluntarily?

              1. Fraud

              2. Mistake

              3. Duress

Dale Denton

Land w/o water. Owner asks driller to find water. If find water, land is worth more. Owner give driller order to drill up to 75’. If find water, will pay $12/feet; if not, nothing. D doesn’t find water. O makes another K with another driller, who continues drilling and 5’ later finds water.

What result? If party assumes risk, and confers benefit w/o meeting condition, it’s not unjust enrichment. It’s not a quasi-k.

Rule If you confer a benefit though express K, but you haven’t met the condition precedent, you have no right to restitution.

Puritan Mills

Express K had description of general work. Rocks were found under concrete, which were not included in quote. Custom and usage was that removal or unforeseen rock would be added to cost of K.

“ordinarily, when one renders services… valuable to another, a promise in implied to pay the reasonable value thereof…even if there is an express K, if

    1. services not contemplated by the original agreement become necessary to achieve the contractual objective and

    2. are rendered and accepted,

the law implies and endorses performance of a promise to pay for such services”

If extraordinary superceding event, may excuse under frustration of purpose, or impractibility of performance. Here there was no assumption of risk by π to remove rock.

Dale Denton,contemplated benefit was within express K

Puritan Millsdidn’t contemplate benefit in express K, was out of K.

Bailey v. West

 contracted to buy horse from seller (S).

S shipped horse; when horse arrived, horse was lame.

 rejected goods; and no one wants horse.

Shipper brings horse to π to take care of horse. send bill to every month. In separate litigation on who owns horse, seller wins, and owns horse

2 types of K: K implied in fact (non verbal K). Same as express K, but manifestation of intent to K is in gestures, and you gap fill. E.g. person gets haircut from barber, no verbal agreement but there is a K.

K implied in law quasi-K. Not based on mutual consent, but duty is imposed by law, to combat unjust enrichment.

Is there a K implied in fact? No, there was no mutual consent. The closest thing would be that owner when decided would pay for care.

Agency Law? No, b/c independent Ktor.

Is there a Quasi-K? π knew that there was an ownership dispute. π is a volunteer. Officious behavior.

Rule Benefit conferred without request has no claim for unjust enrichment.

Benefits Conferred Upon Request

      1. Contract and Quasi Contract

Day v. Guyton

2 neighbors of adjoining land; wall is on property line. π wants other to contribute for cost of construction.

π argues: (1) Express agreement, (no evidence); and

(2) saw me building!! knew benefit was being conferred, and knew π expected to be paid

Rule If benefit is conferred and had reasonable expectation of receiving payment, and beneficiary knew of this expectation and allowed work to be done w/o objections, may infer promise to pay.

Is this a K implied in fact? Or a quasi-K? It appears to be implied in fact K.

If there is an express K, can’t seek restitution outside of K, four corners of K.

Restitution/Quasi-K/Quantum Meruit Law produces few affirmative duties, but does so in the case of restitution. Law values unjust enrichment very highly.

Lombard v. Rahilly

Significance of this case is the Day merely makes presumption, and the presumption is rebuttable.

Disbrow v. Durand

In a family/ household relationship, as opposed to an arms-length transaction, presumption is that there is no implied promise to pay for benefits.

    • Day doesn’t apply here.

    • There is a presumption in this type of relationship that benefit was made as gift, for love and affection.

    • Requires evidence of express K to rebut presumption.

Shanz v. Terry

Shanz was not blood relative who lived in ’s household. Issue is whether she was a member of household or servant.

NY Morron v Morron where couple cohabitate w/o marriage, there is presumption of gratuitous benefits.

Equity factor Courts could have gone either way, but b/c of equity factors (supposed “husband” treated her as servant, and π believed herself to be servant) and evidence, go towards Shanz. This case was borderline.

Rule Must determine nature of relationship before you have presumption that services rendered were gratuitous.

Dunnaville v. McCormick

π was trying to buy subsidiary from , who did biz with Burger King. π ersuades BK (RSI) not to take its business elsewhere, because subsidiary would be worth more with K with BK. π fails to buy b/c couldn’t agree to terms of sale. π sues for unjust enrichment in helping subsidiary to keep BK K.

π performed services in his own self-interest, in speculation of future agreement. Assumed risk, so volunteer, and no unjust enrichment.

      1. Misunderstanding: More of Contract and Quasi Contract

Sheldon v. Johnson

’s children under Dr. F’s care dies of flu. losing confidence in F. F brings another doc (π), saying to that he will pay. F doesn’t say anything to π about payment. π assumes that will pay.

Court says made objective manifestations to π that he consent to K with π. Implies in fact K. π had reasonable expectation that would pay for services b/c of usual implication of law that that there was a promise upon the party that benefits from the service should pay for it. ( I think this is just a law for doc, b/c public policy). had duty to notify π b/c unusual circumstances

would have c/a against F b/c was a quasi-surety to F, b/c π was there fore F’s benefit.

Vickery v. Ritchie

LL wants commercial bath house built on his property. Architect acts as middleman to builder.

Builder signs K for 23k.

LL signs K for 32k.

If this was discovered before K was performed, no K, because no mutuality; but chicanery was discovered after and Archie has left the stage.

Is builder entitled to recover anything from LL?

How should recovery be measured?

1. How much land increased in value? Benefit Conferred? (Unjust Enrichment); or

2. Value of labor and services? Out of Pocket Expenses? (Quantum meruit)

Unjust Enrichment 22k increase in land value

Quantum Meruit 33.5k cost to builder

Is it a K? or a Quasi-K?

It’s a quasi-K b/c the K is implied in law, and not implied in fact, therefore restitution was quantum meruit, or 33.5k

Thormer v. Lexington Mail Order co.

π was commercial artist; was clothes catalog

π believes that he’s supposed to airbrush photos.

 believes π is going to hand draw illustrations.

π gets 6 airbrushed photos, returns 5 and keeps 1.

Court 1. No K, b/c mutual mistake that was mutually created.

2. Measure of restitution is the ultimate value to beneficiary, not cost to service provider, therefore value of the 1 photo that was kept by .

How do you reconcile Vickery with Thormer?

    • It appears that the rule is that if there is an implied K, where beneficiary requests work, then quantum meruit. If implied K, but beneficiary doesn’t request work, then unjust enrichment.

    • Or is it, that if beneficiary doesn’t have to accept and does, then there’s a new implied in fact K, and beneficiary has to pay reasonable value (gap filling), therefore it’s quantum meruit Thormer accepted airburshed photos without having to accept them, he created new K. In Vickery, there was no K, but because LL accepted bathhouse, there was a new implied in fact K, and the K price (gap filling) would be the reasonable value of materials and services, quantum meruit.

    • If there is a K (express or implied in fact), then he has to pay the reasonable price thereof, if there was no stated price. If there is an implied in law K, a quasi-K, then its unjust enrichment remedy.

          1. because impossible to separate land with bathhouse.

          2. Correlary with Guy v. Cayton. If no K, but requested services and services were rendered as intended, and he keeps value of services, has to pay quantum meruit and not enrichment to .

          3. Next case, Thormer, never requested airbrushed photo, therefore only had to pay for benefit conferred.

Benefits Conferred without Request

      1. In General

Critcher v. Watson

LL/T relationship.

T (π) installs value-enhancing windows. Before T leaves premises, LL promises to pay for window.

2 Stage Analysis

              1. When T installed window, should T get restitution? No, b/c done voluntarily and w/o knowledge of LL.

              2. 2 possible situations

                1. After T moves out, LL promises to pay for it. It’s a gratuitous promise, for past consideration, therefore no dice.

                2. If LL made promise before T moved out, T could have taken window with her, and this detriment can be good consideration

Absent special agreement, window putting would have been voluntary, therefore no restitution.

Ulmer v. Farnsworth

π and own adjacent flooded quarries connected by a natural channel so that water flows freely from one to another. π proposes to to share cost of draining quarries. refuses and π goes ahead with draining which drains both quarries. π has no claim against , regardless if now can work his quarry.

Ranquist v. Donahue


owns 7 lots; owns 1 lot

Zoning agreement, condition must improve entire subdivision (all 9 lots) in order to build.

π asks to contribute to the cost of improvement, but refused. π improves subdivision.

After improvements are completed, builds on his lot.

π sues in quasi-K to help pay proportionate cost of improvement.

Issue Interpretation of original agreement

  1. Did agreement unqualifiedly require owners to improve, then build?; or

  2. Did agreement require improving only if owners elected to build on the lots?

If agreement is interpreted as 1. then the owners are co-obligors to city and the must reimburse the π for their proportionate share of the construction undertaken to satisfy this obligation. Can get contribution.

If agreement is interpreted as 2. then a person who without mistake, coercion, or request has unconditionally conferred a benefit upon another is not entitled to restitution; regardless of what did after improvement.

Contribution A person who has discharge more that his proportionate share of a duty owed by himself and another as to which, between the two, neither had a prior duty of performance, is entitled to contribution.

Was there a good reason to meddle?

Only if there was a pre-existing obligation to make improvements, especially if duty was imminently due. They would have been co-sureties to that legal duty, then you would be Jointly and severally liable. Only then can you get contribution.

Court was under no legal duty to improve. It was a condition precedent to build and therefore no legal obligation. To allow for restitution would be to infringe on the civil liberties of because had right not to improve.

Inhabitants of South Scituate v. Inhabitants of Hanover

2 adjacent towns; State orders them to do something and each to pay ½ of total.

π pays the entire fee without being requested by . π sues for contribution.

It is a well settled rule of law that the payment of debt of another raises no assumpsit against the person whose debt has been paid, and no action will lie by reason of such payment, unless a request, either express or implied, to make the payment is proved. Here π was volunteer, and unlike previous case, π’s rights were not effected by non-payment by .

Would there be an infringement of civil liberties if did paid for other? No b/c we are not imposing a new burden.

Variances between principal case and previous case.

  1. Here is under pre-existig duty, previous case no pre-existing duty.

  2. Is π a volunteer? Yes.

In this case, as opposed to the co-surety case, the towns are severally liable.

Rule Even though it’s a windfall to , don’t meddle in another’s biz. Rule of both CL and equity.

Continental v. Chandler

 placed order with NA. Agent of NA changed job and took order with him to new job with π. had 4k credit w/ NA. would have liquidated credit with order; NA subsequently went bankrupt.

Is π entitled to anything from ?

Is there a K between π and ?

No, b/c didn’t intend to K with π

π , absent former ’s agent, acted in good faith. But court doesn’t want to put in worse position had π not intermeddled. Doubtless, π had action against NA. There would have been subrogation.

Note 1. Boston Ice. Court denied relief because π was intermeddler.

Implied in Law Contract Quasi Contract

Quasi K is not a K at all, but an obligation imposed by law for the purpose of bringing about justice and equity without reference to the intent or the agreement of the parties and in some cases, in spite of an agreement between the parties.

Court feels that there is a quasi K, because they feel that the enrichment which unjustly received was the value of the lumber shipped less the trade set off which was entitled to had the transaction occurred as was intended and had been attempted to be completed.

Schoenberg v. Rose

Is there a K between doc and decedent?

K? No manifestation

Quasi K? Is it public policy to have quasi-K? Yes!!

Issue 1. Has decedent benefited? Yes. Must separate benefit from result.

2. Should π be kicked out of it because it’s voluntary? Freedom of choice issue? Court says only one rational choice, doc should treat man in extremis.

  1. Legal duty of Doc? No, maybe ethical duty.

  2. Should jury take into account decedent’s financial status to determine restitution amount? Yes, to some degree.

Public Policy Rule One who becomes ill, and through unconsciousness or otherwise becomes incapable of acting or deciding from himself is liable on the theory of implied K, or promise that having received the benefit of necessary medical aid and attendance, he must pay fro them, no matter by who the doc was summoned to perform them, and from the necessity of the case, anyone is authorized to call a doc to treat him without liability on the part of the person so calling the doc.

Greenspan v. Slate

Girl injures her foot, turns out to be fracture, but no one knows. 3d party sends girl to doc (π), and π puts on cast. Parents see cast and know of injury now. Doc sues for the bill.

Parents have pre-existing duty to furnish medical attention to child. Parents had notice of injury to child, and notice that doc was providing medical attention. Therefore doc didn’t act officiously and as a doc, doc naturally intended to charge for his services.

Bryson v. Hutton

H was employed by π, H wanted to build house for H and W. H takes out unsecured loan from π; Home was built, owned by H and W as tenants in entirety. They get divorce, and W gets deed to house. W is now owner in entirety.

Is W liable for H’s debt?

Court π’s only recourse is against borrower. It is well settled where there is a K between 2 persons for the furnishing of goods and services to a 3d person, the 3d person is not liable on an implied K simply because he has received such goods or services.

Restatement of Restitution A person who conferred a benefit upon another as the performance of a K with a 3d person is not entitled to restitution from the other merely because of the failure of the performance by the 3d party.

Note Case Hypo Unpaid jeweler who had sold and delivered a ring on the personal credit of the buyer, does not have a right of reclamation from a 3d person to whom the ring had been given. Law would be the same even if buyer still had ring. Only recourse is for money. That’s why you need UCC art. 9. You need to secure the loan!!!!!!!!!

Holiday v. Tobin

Lessee of Property Holiday ()

General Contractor


Material Men for subKtor Tobin (π)

Tobin is the unpaid material man. Claims that building supervisor orally assured him that he would be paid as an inducement to bring him more materials.

What about Tobin’s Argument,

  1. This is a suretyship, SOF

  2. Holiday has retained 10% of payment. Tobin claim 3d party beneficiary. Court says sorry, it wasn’t retained for you, intended for Holiday.

  3. Quasi K materials ultimately benefit Holiday. But π has express K with subKtor. Can’t substitute Holiday with subKtor under quasi-K

Matter of Hirsh

Who should pay for services of lawyer?

People who benefit under the will, or Julia, who had an express K?

Court It is a principle of T & E, if services of lawyer benefits estate as whole, lawyer is entitled to be paid from entire Estate, before Estate is distributed, and not merely from the distributive interest of the person on behalf of whom he primarily acted. Exception: If bound by express K.

Here, everyone benefited from lawyer’s act that resulted in rescission of fraudulent intervivos gift, thereby enlarging estate. Therefore anyone who benefited from this has (devisees, distributes or legatees) to pay pro-rata share measured in quantum meruit, regardless of the fact that they were the recipient of the inter-vivos gift.

      1. Benefits Conferred in Protection of Existing Property Rights

Braun v. Hamack

(prof thinks dissent has better argument)

Action by π to recover money expended in bracing and shoring ’s property so that π could proceed with construction on his property. Construction could not safely proceed without the bracing of ’s property.

Dissent 1. Did have duty to shore up his property? Yes, the building codes required proper foundations and had none, therefore had PED, and π is entitled to specific performance.

  1. Was π a volunteer? No, π was protecting his right to excavate. His act was compelled by ’s wrongful non-action. π had legal right to enjoy his property, and ’s inadequately supported building is sole cause for π’s loss

Sommers v. Putnam

Local law (PED) required that school districts supply free transportation to students living beyond 4 miles of school. π asserted that they lived beyond 4 miles, school district disputed claim. π supplied own transportation to school, and sued for reimbursement. After court found that they were beyond 4 miles, awarded reimbursement.

Realy v. North Providence

Relief awarded to property owner who suffered from sewage backup and repaired main sewer line, which was responsibility of city, after city mistakenly maintained that defect was in π’s sewage line and therefore his responsibility.

Life insurance case

Beneficiary of life insurance policy pays the premium after insured stops payment. Beneficiary is later changed. Does beneficiary have a claim for premium payments? No, b/c volunteer (Kiss of Death)

What if insured changes beneficiary without former beneficiary knowing and he still pays premium? There is greater agreement in favor of recovery if payments were made in the mistaken belief that the payor was the beneficiary. Mistake somewhat takes away the stigma of being a volunteer.

Levanthal v. Pomerantz

1st and 2d mortgage, in depth of depression.

2 types of land ownership when mortgage is involved.

              1. owning land subject to a mortgage (doesn’t assume mortgage)

              2. owning land with a mortgage (assumes mortgage debt)

Unpaid taxes become 1st priority lien on property, even above 1st mortgages.

Priorities in foreclosure(proceeds of foreclosure may not cover all mortgages)

  1. Unpaid Taxes

  2. Senior Mortgage

  3. Junior Mortgage

Junior mortgagee gambles that depression is going to end, and pays taxes to buy time. Is junior ME a volunteer? No, therefore he’s reimbursed. Since taxes are the highest priority, should be reimbursed as higher than senior mortgage.

Court Looks to relationship between owner and junior ME. Not volunteer

Looks to relationship between junior ME and senior ME. Here, he’s volunteer because by paying taxes, jr is depriving sr of opportunity to foreclose. Therefore it’s not fair to put jr ahead of sr to sr’s detriment. Therefore court allows taxes to be added to jr’s mortgage. Prof says eminently equitable.

Chapter 13:Benefits Conferred Through Compulsion

Benefits Conferred Through Durress

      1. In General

If under duress, you’re not a volunteer and you may get restitution.

“pay benefit through duress, is a primae facie case for restitution. Assumes no legal antecedent right to benefit b/c if they did, and duress was ueed, no unjust enrichment.”

Prof says not sure, but maybe it’s unjust enrichment; doubtful that it’s unjust enrichment if made in payment of moral obligation, e.g. debt that has gone past SOL.

3 traditional predicates to “un-volunteer” your status.

              1. duress

              2. mistake

              3. fraud

Prof says threat to sue is not sufficient pressure to result in duress. 2 types of duress

Quantitative effectiveness of threat; on 1 to 10 scale.

Qualitative wrongfulness of threat

Plaintiff must prove both to recover:

      • Quantitatively that there was such severe pressure that no reasonable person could have resisted

      • Level of wrongfulness that made enrichment unjust

Beckwith v. Frisbie

 was shipper of oats via canal.. Canal freezes, making it impossible to complete shipment. needs to get oats off boat during winter, or else its going to explode, destroying his boat. Stores oats someplace. Tells π that if π don’t pay storage fees, won’t ship oats. π pays storage fees and sues .

Rule: if had legal rights to storage fees, π can’t get restitution for fees even if used coercive measures to get the storage fees.

Durresive goods If you have no right to payment, and you hold onto goods as lien on payment, other party can get restitution.

Court holds that in case at bar, freeze created impossibility of performance. Who has responsibility for cargo? If ’s own property rights are threatened, and action is done to protect property rights, then is not a volunteer.

Shockley v. Wickliffe

 threatened to sue for non-payment of debt, even though was not entitled to payment b/c debt was paid.

3 traditional predicates to “un-volunteer” your status.

              1. duress

              2. mistake

              3. fraud

Prof says threat to sue is not sufficient pressure to result in duress. 2 types of duress

Quantitative effectiveness of threat; on 1 to 10 scale.

Qualitative wrongfulness of threat

Case at bar:

1. Duress? For policy reasons, threat of suit is not duress.

2. Mistake? Was money paid under mistake? No,

3. Fraud? No, fraud requires scienter, no scienter here, good faith mistake. π should have asked to see notes instead of just paying.

B/c no reason to un-volunteer payment, court says this is a volunteer payment, and a gift at that because of arms length nature of relationship.

      1. Effectiveness of Means Used

Still v. Equitables

π has life insurance policy that had a premium waiver clause if insured is totally disabled. Insured becomes totally disabled. After some time, says π is not totally disabled no more.

Suit ensues, and issue in suit is what does “totally disabled” mean?

What are π’s options?

              1. sue insurance co and stop paying premiums, which will terminate policy; and then you’ll have to sue again to reinstate policy.

              2. pay premiums which guarantee continuity and then sue for restitution by claiming duress. This way you still have your policy.

Court said that choices that π had was no choice, therefore it was duress and issue of fact regarding interpretation of K to see what totally disabled means.

“what shall constitute compulsion or coercion which the law will recognize as sufficient to render involuntary is difficult… It implies that there is some fact or circumstance which will overcome the will and imposes a necessity of payment in order to escape further ills.”

Capps v. Georgia Pacific (Prof says unusual, exceptional circumstances)

Is a threat to breach K duress?

ordinarily no.

Here, knew that π desperately needed money to prevent loss of his home through foreclosure, and knowing this refused payment, and π yielded to the unconscionable demand that he accept 5k in satisfaction of 157k debt.


If buyer promises to pay extra for delivery, and B refuses to pay, can seller get this extra money? No, PED.

Here, party insists upon payment up front. Is lack of consideration a good c/a? Consideration is means to enforce executory promise.

Voluntary Remember, after no fraud or duress or mistake, it’s voluntary

Buyer needs to prove need of immediate relief to show normal legal recourse was inadequate, e.g. cover.

Restatements of Contracts, defining duress

Duress means: (a) any wrongful act of one person that compels a manifestateion of apparent assent by another to a trasaction without his volition; or

(b) any wrongful threat of one person by words or other conduct that induces another to enter into a transaction under the influence of such fear as precludes him from exercising free will and judgment, if the threat was intended or reasonably have been expected to operate as an inducement.

Prof says Most Ks are exchange Ks, buying and selling of services or goods. Nearly all duress comes from non-money performer (seller). Almost never see threat c/a succeed if the money person (buyer) threatens non-payment, like here.

Doyle v. Rector (typical case)

π did the work voluntarily, threat by not to pay until work was satisfactory is not duress. π did additional work, court said not duress b/c CL courts were available to him to compel payment.

NY release without consideration is good, but may be avoided if made under duress.

City of Rochester v. Chiarella

City levied R.E. tax that was in excess of constitutional limits. Many owners paid tax under protest. TP here failed to “pay under protest”

Did city exercise duress? NO

2 points 1. General rule is that if no duress, “payment under protest” adds nothing.

2. Only exception is in tax case, b/c puts city on notice.

      1. Wrongfulness of Means Used

Hockman v. Zyler

T ran biz on property. T had lease with LL that was about to run out, and LL wouldn’t renew. T wanted to sell store because there was large value in goodwill of biz and not in the physical assets. LL agreed to have T sell store and sign lease if LL found new owner acceptable. Found buyer whose purchase was contingent on lease. LL then demanded 3k from T, and unless he got it, he wouldn’t sign lease.

Quantitatively T had no choice

Qualitatively Did LL do anything wrong? If LL was truthful, then no; but court latches onto the fact that LL lied.

Rule To be wrongful under duress, doesn’t mean that it has to be criminal, tortious or in violation of K duty,

Mitchel v. CC Sanitation

π was driver of ER’s truck that was negligently hit by ’s driver. ER wants to quickly settle property damage so they told π to accept ’s lowball settlement offer, or he’ll be fired. Collusion between ER and .

Was Mitchel’s release procured under duress?

quantitative threat of job loss, pretty severe

qualitative was it wrongful to ask EE to drop suit in order to keep job? There can be no duress unless there is a threat to do something whichthe party threatening has no right to do. Power to fire at will EE is within power or ER

Target of claim is tortfeasor’s insurance co, to void release.

If collusion was not there, the threat would have to effect on release between π and insurance co, b/c threat came from , a third party.

Threat of Firing When is it illegitimate?

Court implies that threat is legitimate if it’s an issue within parameter of employment. But if it is used to accomplish goal outside of employ, it is not legitimate and an abuse.

Rule If there’s no collusion, 3d party coercion would have no effect on the 2 parties release.

Benefits Conferred Through Plaintiff’s Performance of Defendant’s Duty to a Third Person

Hunt v. Amidon (Highest equity court in NY 1842) (predate current regime)

 conveys property to Wheeler; receives mortgage from Wheeler.

 sells mortgage to Taylor.

Wheeler quit claims property back to ; sells to Babcock with full covenants; Babcock quit claims to π.

Taylor forecloses and π has to pay mortgage to keep property.

Can π have recourse against Babcock? No, b/c quit claim deed.

Can π get recourse from other’s in the chain? Yes from , b/c gave deed with full covenants to Babcock, and that runs with the land.

There must be a real threat of foreclosure.

    • Principal debtor has primary obligation to pay, if can’t then surety pay. had primary duty to protect Babcock and successive owners.

    • Need 2 elements; 1. Payment by π was done on basis that had legal duty to do so.

2. π must not be a volunteer.

    • RuleIt is equitable principle of very good application, that where one person is in the situation of being a surety for another, whether he became so by actual K, or by operation of law, if he is compelled to pay the debt of another which the other in equity and justice ought to have paid, he is entitled to relief against the other, who was in fact the principal debtor.

State Farm v. Northwestern

Auto accident, and depending on if car was used for biz or not, on of the 2 insurance cos are liable.

Before factual issue was decided, One of the insurance cos paid out.

Is the one that paid a volunteer? No, b/c pub policy

Public Policy Wants quick settlement of claims, let the insurance cos sort it out later.

Mount Airy Insurance v. Doe Law

Law firm let SOL run out, malpractice!

Issue is of firm’s insurance coverage.

Client is unwilling to settle for reasonable amount. Firm says that if insurance co doesn’t pay out, the amount will be much higher.

Insurance counters with a non-waiver agreement, regarding separate matter regarding coverage of policy, but the firm doesn’t sign.

If this suit is not covered, and π pays out, can it get restitution? Or is it a volunteer?

Distinguish the relationships

Before Ct wanted to encourage ins cos to pay up, ; case is really about subrogation and public policy regarding it.

Here There is no public policy concern. It’s not about subrogation. It’s about ins co paying insured’s claim. There is no wrongful threat here.

Court finds voluntary act within its own interest. Mere threat of legal proceedings is not enough to constitute duress. We learned that already.

3d party Insured Insurer

Chicago Title Co. v. Eynard (prof says court’s reasoning was wrong but result was correct)

 gave land to RSW via quit claim deed. Title Insurance co for RSW wants recourse.

Did π give benefit to ? Yes got rid of ’s personal lien.

Was π a volunteer? Court says yes, because he did it to benefit RSW. π had no legal obligation to to pay for his debt. Just had legal obligation to RSW.

Notes One who becomes a surety at the request of the creditor, but not the debtor, may subrogate to the creditor’s position if he is later called upon to pay the debt.

The derivative right to subrogation through the paid creditor is distinct from the direct equity for reimbursement held by one who becomes a surety at the sole request of the debtor. But where one becomes a surety at the sole request of a creditor the subrogation claim is barred if the creditor’s claim against the debtor is barred.

WM Schosen v. Insurance co of NA

π Ks with Fairfax County

Geofreeze negligently allowed excavation that resulted in threat of adjacent building collapsing.

π takes preventative measures, saving from having to pay for major losses and asks for reimbursement.

Ct says only things that were covered in policy were actual damage to other property. If π wanted reimbursement for prevention measures, should have bargained for it.

Chapter 14:Benefits Conferred by Mistake

Mistake clearly overcomes being a volunteer, but being a volunteer is not the only problem.

 civil liberties of beneficiary – If benefit can be returned in kind, primae facie restitution; ie cash money, bottles of champagne, etc.

 problems arise from services and benefits in the form of land improvements; b/c can’t be returned in kind. Loss falls on π, but only if equities fall with .

    1. Payment of Money

Citibank V. Warner

π mistakenly deposited money into ’s checking account. Let’s assume that there was no bad faith.

Rule Money paid by mistake is primae facie case of unjust enrichment.

What about fact that it was negligent of π to deposit the money?

This is where bad faith comes into play; intentional torts will negate contributory negligence.

Note 2 Can negligence be split into 2 (contributory negligence)? Prof thinks that negligence is a red herring. The explanation lies elsewhere. Who was unjustly enriched? the 2 sureties.

Negligent intermeddling may screw you b/c: who should bear burden? Prof thinks intermeddler.

Note 4

McArthur v. Luce

Importance of this case is the difference between mistake and known uncertainty.

Known uncertainty (assumption of risk) is no defense to payment, therefore no restitution.

Norton v. Haggett

π wants to screw with ; paid off his mortgage, thinking that he bought the mortgage.

π argues fraud and mistake.

Ct. There was unilateral mistake of the π, where π intended to buy not and not discharge it.

Mistake is in the eyes of the mistaken party; π was an intermeddler if his mistake was as he believed them to be.

              1. π was negligent

              2. He was an intermeddler;

              3. bad faith

              4. no legal self interest in intermeddling

              5. not friend or family of

              6. if give restitution, would substitute π for bank, which neither bargained for.

    1. Improvements of Defendant’s Property

Camden, Atlantic & Ventnor Land co. v. Mason

Mason gets building loan mortgage from π and improves and builds on what he thinks are his lots; but one of the lots is owned by his niece and he builds something on it. Bank wants to enforce an equitable lien on property. Niece knows nothing about improvement.s.

Can π seek restitution from niece for the improvements that he made? Bank mortgagee is subrogating Mason’ claim.

Difference between this case and bank/cash case.

It would be a severe limitation to civil liberties if we were to make her pay.

If π seeks equitable remedy, can’t get legal relief.

If loss must fall somewhere, it falls with the one making the mistake. Both and made the mistake.

Equitable relief can be used defensively and not offensively. Shield, not a sword.

Note Right to recover mesne profits of the ’s use and occupation has equitable antecedents and consequently is subject to offset by the value of improvement made in good faith under rationale of principal case.

    1. Goods and Services

Lawson v. O’Kelly

 owns commercial building with 2 tenants.

T’s K with π to fix roof, tells π that LL will pay for it.

Ct π should look to T for payment, because there was a breach of implied agency.

Chapter 15:Bona Fide Purchase and Related Defense

Focuses on Affirmative Defenses

    1. Legal and Equitable Title

Titcomb v. Wood

Transaction between π and crook for exchange of gold watch for silver watch. π was deceived into selling gold watch by fraud and can trace watch to . is transferee of fraudfeasor. Made primae facie case for fraud. Property π received was stolen, therefore π has no title, and must be returned to true owner.

In order to have affirmative defense, must have legal title.

Did crook get legal title to π’s gold watch? Did π give watch freely?

Rule Fraud in inducement is a breach of K; where there is some fraud in the consideration. Title of the consideration passes to the fraudfeasor, but that title is voidable as against fraudfeasor.

If fraudfeasor passes title to BFP for value, bars defrauded party’s claim to property from BFP. To be BFP for value:

              1. Legal title must be had

              2. No notice (BFP)

              3. must give value

Here Yes, therefore crook has voidable title and not void title, he can pass it to a BFP for value.

Π intended to transfer title to crook, therefore title passes; but it’s voidable between TR and TE, b/c fraud in the inducement, but not voidable against BFP.

Is there any species of property that thief can pass good title to?

Yes, cash money, b/c of public policy.

Fawsett v. Osbornw

Fraudfeasor was tanning π’s hide. FF pretended to be true owner and sold to 3d party.

Can π recover from 3d party?

Whether title passed to FF depends on intent of transferor, the True Owner.

UCC § 2-403(1) a person with voidable title has the power to transfer a good title to a good faith purchaser for value.

Is for value the satisfaction of an antecedent debt?

Here, TO probably just gave FF bailiff’s rights and not title. No title, therefore is not BFP for value and therefore π can recover from .

Separate issue is equitable estoppel.

TP gave FF indicia of ownership. But b/c it’s a commercial transaction, it would deter commercial bailments and court says no dice.

What about UCC Statutory Estoppel?

UCC § 2-403(2) any entrusting of goods to a merchant who deals in goods of that kind give him the power to transfer all rights of the entruster to a buyer in the ordinary course of business.

Fairbanks v. Snow

H wants to borrow money, makes W guarantee loan (under duress) as a surety.

H defaults, creditor sues W.

Does W have affirmative defense?

Two types of Duress

  1. Duress in execution K is void (legal remedy)

  2. Duress in inducement (consideration) K is voidable

If good faith party didn’t commit duress, then may enforce K.

Pimperniello v. Smith

Π didn’t know what he was signing, therefore fraud in execution, and it’s void.

Rogers v. Dutton

Scam Crook goes to π, who is in the hay biz, and says he’s agent of ; Crook goes to and says he’s TO of hay and sells to .

Is a BFP for value?

Did π intend to pass title to ? No, title didn’t vest in because he wasn’t party to K. Between π and , both must intend to be party to same K.

Note 1: Williston on K

“Where a person falsely represents that he is an agent for another, and by false representation obtains possession of goods, the seller agreeing to sell to the alleged principal, no title passes. The alleged principal gets no title because he never agreed to buy, and the agent gets no title because the seller never agreed to sell to him.

didn’t have title, so not BFP for value.

Note 3 Contains suggestion that amendment to UCC may affect outcome of principal case.

Note 4 for more distinction between fraud in execution and fraud in inducement.

McDonald v. Johnson

Con man sells car to π. Π was innocent purchaser. Π sells to . Efficient police take car from .

 sues π on implied breach of warranty of title.

Did π pass good title to ?

Did π get good title from crook? Was π BFP?

No!, same result as cowhide case. Crook was bailee, and these rights were the rights that he perfected. Technically he could pass that interest, but the 13 days of the rental had long expired. Crook has no right to transfer full title.

    1. Land Transactions: Conveyances and Mortgages

Rapps v. Gottlieb

Basis of alleged RE transfer was a conditional mortgage, but the crook assigns mortgage.

Does assignee have mortgage interest in a fraudulent bond?

Title is interest in realty. Bond and Mortgage.

Mortgage is valid as long as bond is. Mortgage has no efficacy if bond is no good.

Stern is assignee of Gottlieb’s rights Suretyships

As against obligor, assignee stands in no better shoes that assignor; vis a vis the obligor.

Therefore Rapps has complete defense against Gottlieb, then full defense to suretyship.

Equitable Estoppel? Such application of this rule would completely annihilate the surety rule. It would be too big an exception.

Note 1 Before we shed too many tears for poor assignee, she could have easily protected her rights by inquiring with the MR. This neutralizes any estoppel argument.

Andrews v. Gillepsie

Assignee has action against assignor of bad assignment. There is an implied warranty.

Simpson v. Del Hoyo

 was fraudulently induced by Rosa’s dad to deed land to Rosa.

Rosa gives to dad bond and mortgage to land for 1k upon some alleged consideration.

Dad assigns bond and mortgage to good faith π for value.

Rosa reconveys land to , who doesn’t know of B&M.

Fraudster Fraudsters

(Not BFP)

Rosa Rosa’s Dad Simpson (subsequently sues )

deeds Bond + Mortg. assigns B+M

deeds back

Π’s action to foreclose mortgage. claims fraud as defense.

Can Rosa’s dad foreclose against ? No, b/c fraud.

Can Simpson stand in a better position than Rosa’s Dad? No!!!, because assignment.

Note 1 Mortgage and Bond are separate Ks. In Rapp, if bond was invalid, mortgage was.

Bond Who is the obligor? Rosa. Here, it is presumably valid. Is lien on mortgage good?

Mortgage Is a lien, a CL legal lien. Action to foreclose is equity.

        • Mortgage is a deed to land w/ condition subsequent, where loan repayment in the future is the condition of deed.

        • MR would get time to redeem if default.

        • Foreclose is equity where time to redeem is ended.

If dad had held mortgage, and attempted to foreclose on land, would have good defense.

Because assignment to π, π has only as good rights as dad, therefore has good defense to π.

If dad had taken mortgage as BFP for value, could have been enforced against land (here dad not BFP); if dad as BFP assigned mortgage, assignee would have good claim.

Ingersoll v. Somers

As between 2 equitable claims to same subject matter:

the one who has a claim prior in time has a prior in right.

In contrast, to BFP rule which supposes that where a prior equity is followed by subsequent legal right for value, then subsequent legal right for value prevails;

But if subsequent legal right is equity (then can’t be BFP), then previous equitable right prevails.

Affirmative Defenses to Restitution
    • Legal interest gained for value, a BFP, is perfected and therefore protected.

    • Subject matter of benefit may be property, money, or even a K right; i.e. Fairbanks v. Snow, where wife was under duress to make K w/ creditor. Ct protected creditor’s rights.

Compare 2 different situations

In order to be BFP, must acquire legal rights as opposed to equitable rights

Legal rights were those recognized by CL courts (before merger of CL and Equity courts).


K to buy RE not only right against promissory, but also general property rights.

Buyer gets legal right at closing, but gets equitable rights at K formation.

Rule 2d purchaser doesn’t prevail b/c if both have equitable rights in property, and RE hasn’t been conveyed to either (meaning 2d purchaser hasn’t got legal right) , first purchaser gets it b/c first in line, first in right!!

Ingersoll v. Somers

 gained judgment lien (statutory legal lien) against Kearns.

Kearns then sells piece of tract to π (who did not know of lien), w/ warranty deed.

Kearns then transfers another tract to Knauer; Knauer executes mortgage on land to secure pre-existing debt (PED) to .

Lien is foreclosed, and the transferred land is needed to satisfy lien. Which land goes first?

Π seeks as 1st grantee of judgment debtor, seeks to prevent enforcement until 1st enforced against the 2d transfer.

 wants to go after π’s land first because it has mortgage on 2d land, and pointless to go after your own land to satisfy a lien that you hold, therefore wants to go after 1st’s 1st.

Rule As between equal equities, the equity prior in time wins. If inferior equity, superior equity wins.

If land subject to encumbrances are sold in parcels at different times, and each of the transfers are intended to be free from encumbrances (everything being equal but timing), as between the several grantees and the holder of the encumbrance, the lands in equity are chargeable with the encumbrances in the inverse order of then transfer.

If foreclosure now, order used to satisfy

Land retained by Kearns (unsold lands)

2d purchaser

1st purchaser

Which piece should bear burden for paying the lien?

1st? b/c covenant, land retained by Kearns?

2d? Land sold, b/c lien attaches to property?

Equity to marshal assets will not be displaced by rights or liens subsequently acquired by others unless the subsequently acquired rights are those of BFPs for value.

Interesting fact, 2d transferee, Somers, was judgment lien creditor.

Marshalling would adversely effect Somers’ rights. Is Somers a BFP?

******No, mortgage was made to secure a pre-existing debt or mortgagor, and not ******new value. They must give new value!!!!,

As between 2 legal rights, the one prior is superior.

Not all equity rights are equal, the stronger equities are superior.

Payments to Creditors and Assignees

Stephens v. Bd. of Ed.

Gill owed money.

Sold forged mortgage to π fraud in inducement.

Gill took check, deposited into his account; from that account wrote check to (good faith) in satisfaction of debt.

Can π recover from ? Is Bd of Ed a BFP or must it make restitution?

In monetary (cash) transactions, payment to an antecedent debt makes transferee a BFP b/c policy considerations re: use of cash. (“money has no earmarks” and that possession of money vests the title in the holder as to 3d persons dealing with him)

Note 1 Holder of negotiable instrument in due course is BFP.

Note 2 Real solution to problem lien that it was voluntary payment.

Hathaway v. County of Delaware

Treasurer of county stole money from county. New Treasurer (NT) discovered this and demanded return of money, Old treasurer (OT) gave forged county bond to π in return for check made out to NT personally, not OT. OT gave check to NT, deposited by county and OT’s debt was discharged.

Π sues county for return of money.

Rule Money paid under mistake of fact may be recovered back, however negligent the party paying may have been in making mistake, unless the payment had caused such a change of position that it would be unjust to require refund.

Receiver of Cash and checks in transaction are BFP (public policy). But here π was discharging OT’s debt with a check made out to NT.

But OT had no title to check, and couldn’t use it to discharge his debt; he was merely an agent of the π’s for the purpose of delivering to the . You can’t use another’s check made to someone to buys something yourself. Therefore π paid money in mistake.

Element of notice to BFP. County should say: “what are you doing with this check? Using it to discharge your debt?” County had notice, therefore not BFP, and money paid in mistake has to be returned.

Note 1 Thacher v. Pray

T stables his Horse with G, who owes him money for potatoes. G sells horse to P for $100, give G check payable to G. G endorses check and gives to T is satisfaction of potato debt.

Can T get back horse without repaying P?

Yes, b/c “if G sent the check to T to be applied to account of potatoes, and T did so before he knew of horse(notice), the mere fact that the check was sent was the same Fcheck that P gave to G is of no consequence…”

Note 2 Assignee of K right can’t be BFP b/c assignee stands in the shoes of assignor. Assignee only gets equitable right and not legal right.

Merchant’s Insurance v. Abbot

 burned building to pay creditor. Insurance paid creditor b/c assigned policy to creditor.

If fraud is found, don’t have to pay claim. Π paid claim.

Court said that is liable to π, not the assignee.

If π paid , and paid creditor; π can’t get money from creditor. In this scenario, same principle. Title to money is legal.

Before payment, assignee is equitable holder. After payment, assignee as holder of money, for antecedent debt has legal rights.

Where one of 2 innocent persons must suffer by the misconduct of a third,the loss should lie where it has fallen.

Shield Benefit Adm. v. U. Michigan

Involves mistake, not fraud.

Π is health insurance co., that made mistake and paid hospital more than the policy limits.

Mistake of fact must be refunded, even if mistake by payor could have been refunded.

Under Merchants, assignees of legal rights for value, don’t have to give money back.

Restatement Restitution § 14(1)

Exception to mistake in fact is when a 3d party creditor is involved… A creditor of another or one having a lien on another’s property who has received payment from a 3d person any benefit in discharge of the debt or lien, is under no duty to make restitution thereof, although the discharge was given by mistake of the transferor, if

              1. No Fraud: the transferee made no misrepresentation; and
              2. No Notice: did not have notice of the mistake…”

Hospital had in fact performed services to individual; individual assigned rights from insurance to hospital, and wasn’t unjustly enriched. It was the patient and not who was unjustly enriched.

Note 1 Preface to defense of Change in Position

maybe not BFP, but alters position in life, may provide defense to making restitution.

Change in Positionis defense used when one doesn’t qualify as BFP. Applies to facts after payment.

BFP focuses in time of payment, not after payment.

National Shawmut

M, and insurance broker, possessed several policies by insurer payable to S.

M forged S’s signature, and received from policy loans (secured by the policies), payable to S.

M forged and cashed the loan checks.

Subsequently, M refinanced the loans by borrowing from π in S’s names; loan in the form of 2 checks.

  1. one to for unpaid balance of loan, where released the policies to π, π now using it as security for its loan to “S”;
  2. other payable to S, Which M cashed through fraud.

Π sues to recover amount paid directly to .

Analysis of as BFP

  1. Had title to money b/c 1st check was between 2 lenders, because legal title passed, when you pay money as payment for an antecedent debt is for value. (is this only for the payment of money?)
  2. No notice of fraud
  3. did they do it for value? The surrender of insurance policy, Did they surrender valid lien? Did have legitimate lien?

The so called lien was a nullity (fraud in execution), so when they gave it up, they gave up nothing; therefore no valid (BFP) affirmative defense, therefore have to pay restitution.

What constitutes for value?

What constitutes notice?

    1. Benefits Obtained Through Act of and Agent

Martin v. Gotham National Bank

B & L were officers of . B & L started corp. and fraudulently induced π to loan corp money. With loan, paid back corp’s debt to . When π learned of fraud wants back money paid to .

Bank is liable to π for acts within B&L’s agency to . Principal was not liable for loan, b/c agents were acting for another corp. in getting loan (way outside their authority at bank), but when 2,450 was used to pay back loan from bank, then the bank was liable, b/c the agent’s knowing of the fraud was imputed on the bank. Paying back bank was within agent’s authority.

Acts within their authority, the principal is liable

Principal cannot claim a positive benefit to himself from the fraudulent acts of agent.

In Re Brainard Hotel

Cashier at hotel was stealing money from register, gets caught; C pays back by stealing from guests; put part of money in register and gives part to manager.

  • Money placed in register was subject to constructive trust for theft victims;

  • Money given to manager, hotel was BFP; assuming that manager had no notice of theft.

Bank of Overton v. Thompson

Thompson (T) and H entered into joint cattle venture. T advanced money, H raised cattle on his ranch. T owned cattle, but H had power to sell. After repayment of sums advanced by T, profits were to be divided equally.

H sold cattle to S, with check payable to , which H was chief cashier and officer of; H deposited check into his account and withdrew entire amount. H is now insolvent. No one but H knows of T’s interest.

T sues bank as trust funds received with notice of π’s interest.

Π claims that H’s knowledge of the facts are imputable to the bank under general rule of agency: knowledge of agent, while working in scope of agency, is notice to principal.

Exception where the agent’s relationship to the subject-matter, or his previous conduct, render it certain that he will not disclose; there is a presumption that the agent will conceal the facts which might be detrimental to his own interests.

For whose benefit was the money deposited?

Here, H washed money through bank. The agent’s personal interest was at odds with principal. If you look at two transactions, it was not done for benefit of bank, but for himself; distinguishable from Martin v. Gotham. Therefore acts are not imputed to principal.

Court must draw line on acts imputed to agent

Cobbs v. Dow”an innocent principal cannot take an advantage resulting from the fraud of one acting ostensibly as his agent, without rendering himself liable to the injured party.”

Restatements 2d Agencywhere an agent, having no power to bind the principal, acquires property from a 3d person through fraud, and without the P’s knowledge transfers it to the P to make up for past or future fraud, the P takes it subject to a constructive trust, since he is enriched to the extent of the value of the property thus transferred and has given up nothing in exchange..

    1. Estoppel, Change of Position and Laches

Herman v. Conn

2 successive assignments of same life insurance policy.

Can an assignee be BFP? No, b/c only gets equitable rights.

Under general rule, first in time, first in right; prior in right prior in right.

But why did Court find for 2d assignee? Equitable estoppel (change in position)

  • When the owner, 1st assignee, “when by his own conduct has clothed the wrongdoer with the indicia of ownership s to justify a 3d person in regarding the wrongdoer as either the rightful owner or having authority from that owner”, he is estopped from showing the truth.

  • An insurance policy has a tangible being, and when a policy is assigned, there is usually delivery of the actual policy; although not absolutely necessary, it’s customary.

  • If no delivery, gives insured ability to defraud “2d assignee”. How? By clothing him with indicia of ownership.

  • Here, π did clothed wrongdoer with indicia of ownership, and in good faith transacted a loan on the basis of the assignment of the policy. Court holds that should be able to keep amounts that he detrimentally relied on because of the negligence of π.

Note 2: to distinguish Rapp, supra pg. 5-15

Is it distinguishable? Trig to stop the obligor (in Rapp) from transferring until a loan was actually consummated. Here the obligor is the insurance co.

  • As opposed to chattel, an insurance policy has no other reason for being than to evidence rights to a policy so when you let someone hold onto the policy, the evidence is very strong that they own it.

  • To have estoppel, you must have a casual connection between the detriment and the one seeking estoppel.

Segal v. Barretto

H embezzles money, cashes it, gives cash to W. W deposits into her account. Spends money on H and household.

Is W BFP? Majority thinks that W is BFP

              1. Title for cash passes with delivery

              2. For value?Ct says yes (house chores), but prof thinks reciprocal gifts)

              3. No Notice?bullshit

Blackburnalthough not BFP, there was a change in position, if money was drawn from account for the H’s benefit, W is not liable.

Note 2 pg. 5-38 Payment for debt by cash means immediately BFP

    • Significance is that even if you’re no BFP, you may be able to use estoppel to show that you weren’t unjustly enriched. How?

“The case is the same as if stolen funds were placed in the hands of any agent or bailee, who, without knowledge that property was stolen, disposed of them in accordance with the directions of the principal or bailor.”

Buckley v. Second Nat’l Bank

Forged check, therefore title doesn’t pass

Party guilty of tort can’t use estoppel, only innocent parties can, change in position. Bank was guilty of conversion.

NY You become liable for conversion when you refuse to return property. Before that, you are not a tortfeasor. Here if horse dies before demand is made for return, not convertor.

Paine Webber

What constitutes change in position?

In order to defeat claim of restitution, payee’s change in circumstances must be detrimental to payee, material and irrevocable and such that the payee cannot be placed in the status quo.

  • For Example payee is not required to make restitution if, by reason of the mistaken payment, the payee has assumed liabilities and obligations that he would not have otherwise assumed.

  • Prejudice to the payee doesn’t occur when he uses the money to cover ordinary living expenses or to pay pre-existing debts,

Paying debts? not change in position.

  • Use the “but for” test, uhh what’s a but for? heh heh..

    1. Double Dipping: Collateral Benefits

2 Types of Subrogations

        1. operation of law equitable subrogation

        2. contractual conventional subrogation

What kinds of insurance fall under Conventional Subrogation

Indemnity Insurance dollar for dollar loss, i.e. Fire Insurance, from wrongful act of non-insurer. If insurance co pays claim, they subrogate their insured claim.

Insurance for Fixed Dollar Amount is no proportionate to loss, but to the amount of the premium. There is no subrogation here.

May an insurance co put itself in a better position that it would be under equitable subrogation? There is a strong public policy against language of these types of agreements. Strictly construed.

Suppose wording in unambiguous?

Should court say “freedom to K”? or not allow these kind because against public policy?

Equitable Subrogation

De Cespades Insurance co has recouped loss from tortfeasor

Subrogation serves to limit double recovery, but has the effect of “If has frequently become a source of windfall to the insurer in that the anticipated recoveries under subrogation rights are generally not reflected in the computation of premium rates”

Make Whole Principle

 pursuant to equitable subrogation, i.e. fire insurance, policy is worth 100k. Building burns down and does 150k worth of damage. Ins co pays 100k.

Can ins co sue tortfeasor for 100k? Not if it would prejudice insured.

Suppose tortfeasor isn’t solvent, but has insurance of 100k. Should ins co subrogate to be re-compensated fro its payment? Only after insured is fully compensated.

Franklin Can insurance co buy K, give itself greater subrogation rights than in equitable subrogation?

Courts are divided, the court here held that Make Whole Doctrine is so important that it will not be overturned by a K of adhesion.

This suggests that if 2 sophisticated parties negotiate and K, but not in life insurance type of K, that court would uphold K.

Supra is the CL regarding insurance.


Walker ERISA, typical ERISA plan requires reimbursement on a 1st choice basis. Ins co is entitled to 100% reimbursement of any recovery. It’s at odds with make whole principle, b/c it says insurance co should be made whole before insured. Courts says Fed pre-empts state law, and freedom of K. Ins co gets 100% undiminished by lawyer’s fees

De Cespedes

Π was hurt by tortfeasor, settled fully w/ tortfeasor. Π then makes another claim against her insurer.

Subrogation insurer, when pays all insured loss, to prevent unjust enrichment by insured, inherits all rights of insured. Only in indemnity insurance claims.

2 types of policies 1. Value More like an investment, e.g. life insurance

2. Insurance for indemnity for a loss, e.g. fire insurance

Medical insurance falls in no man’s land, b/c fixed payment/day in hospital.

Subrogation policies Courts if there’s an agreement, we will enforce agreement, sufficiently like indemnity.

Note 1 Court says no way to subrogation claim in life insurance policy.

Franklin v. Health Care

Auto accident

Health insurance paid 71k

Total health cost 124k

Total loss 400k

Received 25k from tortfeasor

Court treated subrogation clause as K of adhesion. Insurance co should only subrogate when π is made whole, and not before.

Equitable subrogation court is applying same constraints to contractual subrogation.

Dissent Ktual subrogation trumps equitable subrogation.

NY NY is leaning towards making whole first, even if contractual subrogation.

Wallen v. Hormel

All previous insurance were auto insurance. Here it’s ERISA.

ERISA pre-empts state claims.

200k payment by ERISA insurance plan. Plan demanded subrogation, ktual subrogation.

Π argues make whole doctrine, b/c insured is making premiums and should thus get paid 1st.

Court distinguishes between ER paid insurance and insured paid insurance.

This is the way Fed courts are headed. Prof says very bad!!!


Insured had 2 insurance policies for the same type of damage, fire.

Insured was tenant in commercial building and had fixtures insured by insurance co.

In addition to insurance, lease says that LL will replace fixtures in event of fire.

Fire occurred causing 4k worth of damage.

Insurance co refused to pay for damage because LL had already repaired fixtures.

Why doesn’t LL duty to repair inure to π and not insurance co.?

NY Rule The fact that the insured may recoup his loss by the contractual liability of a 3d party in no way affects the liability of the insurer.

Here LL obligation was something π paid with his own funds by increased rent.

123 East 54th Street

π restaurant taxed customers by mistake when it didn’t have to, and paid that tax to the govt. π then filed a claim from the govt for a return.

Govt refused to return because said that it owed the tax refund to its customers, therefore a windfall to π.

Tax court says only one TP, and implicit is that π owes customers the tax collected.

Chapter 16:Benefits Obtained Through Wrongdoing

    1. Interference with Tangible Property

      1. Legal Remedies

Corey v. Strieve

If conscious tortfeasor makes profit from tort, victim may waive tort remedy and sue in quasi K, on the theory that tortfeasor should not profit from the wrong.

Usually remedies are the same.

Here no harm to victim, but may recover money through quasi K.

Note SOL for K is 6 years,

SOL for tort is 3 years.


A steals trees, cuts down and cuts down into board. Trespass and conversion.

B, the TO, gets back via replevin (legal right).

Value of trees standing is 38k.

Delivered value of logs are 64k.

Does A have c/a against B for unjust enrichment (the value added to the property)?

Law says no, b/c invasion of right to choose how to spend money.

Measure of Damages

Conversion measure of damages is the value of prop at time of conversion. It doesn’t matter if conversion occurred in good faith or not. Here timber co converted prop when they bought the delivered logs, therefore enhanced value of logs.

Willful trespasser Liable for enhanced value of property, here the value of the standing timber enhanced by the trespasser’s cutting and delivering.

Unconscious trespasser Liable for value of property at time of taking.

Here replevin is better c/a than for damages than _____, b/c if sue for damages from willful trespasser, get cost of improved property.

What if trespasser sells to innocent buyer?

Buyer gets no better title…

How much damages from purchaser?

Value at time of conversion, if purchaser bought in the improved condition, value of the improved property.

Court asks, what about innocent trespasser and innocent buyer?

Does there ever come to a point where the original property is so changed that original owner can’t lay claim? E.g. suppose π’s wood was used to build a boat?

NY Courts went very far as to title, e.g. grain turned into whiskey, can replevin whiskey.

But Prof says there must be a point where it becomes absurd, e.g. someone steals paint, makes masterpiece…what result?

What about… Title by Annexation where property becomes so intertwined with another as to become inseperable.

e.g. steal paint from store, paint house with it…Who owns house?

      1. Equitable Remedies

Shaler v. Trowbridge

H stole money from partnership. Conclusively used stolen money to buy RE and life insurance policy.

Constructive Trust not created by K or relationship of parties, but which equity imposes in such a matter to protect the rights of the defrauded party.

Example If fiduciary purchases prop with fiduciary funds, and takes title in his own name, he will by construction be charged as a trustee for the person entitle to the beneficial interest in the fund with which such purchase was made. Applies to partnership, like here.

              1. If investment becomes profitable, profits do not belong to wrongdoer, just as in a regular trust situation, it being a fundamental principle in regard to a trustee that he shall derive no gain to himself from the employment of the trust fund.

Does this mean that innocent receiver for value, has to return property, but can retain any profits from it?

              1. No receiver of trust property can derive profit from fraud, except innocent purchaser for value, (not a BFP: BFP requires title).

Life insurance policies are no different!!

Who has legal title to land bought with stolen cash? The thief does.

Who has legal title to life insurance policy paid for by stolen cash?

Widow was not wrongdoer, but was a 3d party beneficiary. She is not a BFP, but a donee beneficiary.

Newton v. Porter Equitable remedy of constructive trust without fiduciary relationship

Negotiable bonds were stolen from π and sold by thieves, who invested proceeds into bond and mortgage.

 was not BFP.

“…whenever property of a party is wrongfully misapplied, or a trust fund has been wrongfully converted into another species of property, it will be held in its new form liable to the rights of the original owner. Or the trustee… We are of the opinion that the absence of a trust relationship is no obstacle to giving the π the benefit of the nores and mortage, or the proceeds in part of the stolen bonds.”

Rule Π’s rights are not limited to original thief, but if he can trace the transaction, if he can prove that the Bond and Mortgage was the direct result of cash stolen, then π will be the equitable owner of the bond and mortgage.

If thief still has property, can get legal remedy of replevin.

If he doesn’t, can use equitable remedies.

      1. Equitable Remedies: Mingles Funds: The Rule of Jessel’s Bag

Knatchbull v. Hallet

Rule of Jessel’s Bag If had $50 in silver coin, and add another $50 that’s stolen, and they commingle. Assumption is that there is a constructive trust, where when he pays out from the commingled funds, he pays out of his funds first, leaving the trustee the best chance to recover some of the stolen property. Law gives preference to victim of theft. This assumes that funds are dissipated (untraceable).

Suppose Money is first used to buy stock, subsequently balance is dissipated, what happens to the stock?… If we apply this principle, π doesn’t get the stock and gets the shaft instead.

In re Oatley If we add both these cases, π gets an equitable trust on the whole amount

Equitable Lien Is a constructive mortgage, created by operation of law. Claim remains the same, the restitution of the amount stolen where claim is for a fixed amount (differs from constructive trust).

Constructive Trust More like a partnership, if value of whole goes up, your % stays the same.

Parr v. Duvall County

P stole money from DC. Paid for 60% of the ranch with stolen money, 40% was paid for with his money. P later replenished his accounts that were drained because of his 40% payment with stolen money.

How much of the ranch is held in trust for DC?

Doesn’t matter that P later replenished source of 40% with stolen money. The only effect was to create a debt to the county.

They’re equitable partners, P and DC, where DC owns 60%.

Note 1 Sometimes court give you the option of gaining an equitable lien, if you could have a constructive trust, but not vice versa.

Note 2 If stolen money is used as a downpayment for a purchase, the % in constructive trust to theft victim is the % of the investment, not including the mortage.


Outcome of constructive trust can make the victim profit, under theory that wrongdoer shouldn’t profit.

But where donee beneficiary (innocent party, not wrongdoer) of thief makes an investment, there is not constructive trust. Will it be an equitable lien?

John Roscoe (Bolton) v. Winder High Court, Chancery Div. (1914)

WW purchased π’s biz, and promised to collect book debt of biz, and pay all the vendors with money received. WW collected 455£ and put it in bank account. Withdrawals reduce account to 25£. New deposits furnished by WW’s W raised balance to 328£. WW dies.

Π seeks to have lien declared on account.

Lowest Intermediate Balance Rule

    • Fiduciary commingled, comingler then made withdrawals which reduced balance. Then replenished balance.

To what extent is π a secured creditor and an unsecured creditor in the replenished funds? The smallest amount to which the balance to the credit of the account had fallen..

Holding that π had no equity in these new deposits. Equitable lien is only against lowest balance. Subsequent deposits were made to reimburse the previous lien, then it should be used as such.

      1. A Closer Look at Equitable Property Rights Difference Between K Rights and Property Rights!!!

2 perspectives Equitable Lien (EL)

Constructive Trust (CT)

Results What facts justify one or the other?

    • Constructive Trust same facts would justify equitable lien.

    • Equitable lien But not vice versa

Steal Money Pay part mortgage, therefore equitable.

If you buy something, CT!!!

McKey v. Paradise

Co creates unincorporated ass for pension benefits funds.

Co agreement with EEs: would withhold $ fro pension fund. When co went bankrupt, owed pension fund lotta $.

EEs asked for a preferential claim against estate, an Equitable lien (EL) to bankruptcy trustee.

Bankruptcy estate can’t hold property that someone else has equitable title to.

Issue Is the money a creditor/debtor relationship? or trustee/beneficiary?

    • Unless specified funds are earmarked to pay creditor, e.g. in a separate account, there is no trust fund.

    • Agreement to pay ass specified amount did not give the ass and equitable lien or trust upon any part of the ER’s property.

Note 1 Trustee must not commingle funds; if EE had given ER money, then trust.

Baker v. New York Exchange Bank (supplement)

Π is mfg of goods.

Wilson sells goods on commission, he’s a commission agent.

W assumes risk that customer will pay, therefore is for balance of account regardless of customer ultimately pays.

All payments by customers were put into an account at .

W didn’t segregate, but when biz was bad, became honest and kept separate accounts, and kept enough for each arrearage, which was aware of.

There came a point when W told bank to take money from the separate accounts to take care of personal debts. W becomes insolvent.

Π seeks to recover amount of check drawn by bank for not biz stuff.

W and π have fiduciary relationship, therefore all payments received by W are held in trust. Title to goods remain in π, and when sold, proceeds belong to π. Relation is not debtor/creditor, therefore any money in his accounts after bankruptcy are not property of bankruptcy trustee. Money and securities are property of π, subject to rights of any BFPs.

NYCTofAPP Fiduciary relationship between W and π may be modified by agreement. W commingled funds in single account, but when he became insolvent, he rectified by opening separate accounts, which bank knew about. Only then did π get equitable lien against account.

Then W withdrew amount in that account for the bank.

Is bank BFP? No, b/c bank had notice.

When trustee diverted funds from trust and thereafter replenishes funds, the funds belong to the trust, even if not originally part of trust.

What role does the check play? Note 1

Bank is not liable for not honoring check; here bank is liable for assisting in misappropriating trust funds.

In re Morales Travel

As before, trust relationship can be changed by express agreement, and by course of action also, by the acquiescence of the principal to treat as a debt.

Eastern knew, nothing was being segregated, therefore relationship changed to debtor creditor.

Holding That Eastern’s petition to be preferred creditor is denied, because Eastern waived right to trust relationship.

In re Unicom

Payment by mistake.

Unicom, instead of returning check, deposited it, afterward sent their own check, thereafter it went bankrupt, the trustees voided the check as a voidable payment.

Voidable preference Trustee can void payments to creditors made 90 days after bankruptcy.

This case holds that where you have a mistaken payment, and you know of it and deposit in your accounts, it is treated as a trust fund. As long as you can trace it, of course, and if there is a lowest intermediate balance that is high enough to cover that debt, it’s OK.

Morales commingling w/, w/o permission is OK, if you’re a d/b relationship.

Rutherford National Bank

Commissioner, as agent for the state, entered a judgment in county clerk’s office, as a judgment creditor.

Who has a better prior lien? Mortgage or Judgment Creditor?

Legal mortgage was subsequent to judgment lien if only these facts, judgment lien wins.

But!!! There was an oral mortgage. At time Boyle made promise, S owned land, therefore that promise couldn’t pass anything then.

Legal mortgage need document, equitable mortgage is creature of law, based on interest, that B should have mortgage when Boyle buys property.

SOF doesn’t prevent creation of equitable mortgage.

Did subsequent docketing of JLC preclude equitable mortgage?

Is JLC a BFP? NO, b/c didn’t pay value (remember what “value” is, can’t be discharge of an antecedent debt, unless its for cash), therefore earlier equitable right is superior.

Note 2 Equitable mortgage requires present consideration.

Legal mortgage is an executed conveyance, and no more requires consideration than any other executed transfer of property (like a gift). Legal mortgage can be based on PED, b/c it’s a present trasfer.

        • E.g. a prior unrecorded mortgage . given to secure an antecedent debt is valid and given priority over a subsequent JLC.

        • Remember, JLC is not a BFP

­Note 4 Recall 90 day voidable preference; suppose that 100 days prior, Debtor transfers RE to creditor, but by mistake deeds life estate. Mistake is discovered after D goes into bankruptcy. Creditor seeks reformation, and D does within 90 days.

Will creditor succeed over objection of bankruptcy trustee?

To get equitable mortgage, need present consideration, here, it’s an antecedent debt.

Field v. Mayor of NY Context of assignments, Legal and Equitable Asignments

Bell assigned proceeds from future Ks with the city.

Bell got new K, but despite notification of assignment, city paid Bell.

Assignee sued city.

Legal Simple holder of existing K right transfers right. Assignment is an executed transfer (can be gratuitous).

        • You need a present existing K right.

        • It must also be a type of right that the law allows.

        • I.e. tort c/a for personal injury is not assignable.

          • Can assign proceeds but not c/a.

Equitable Assignment of future proceeds is an equitable assignment. In Field, assignment of future K rights (rights you don’t have yet) is an equitable one.

Note 1 Agreeding to pay a debt out of a designated future fund doesn’t create an EL.

Note 3a Donavan

RE broker employed by , engaged another agent to assist in sale.

2d agent claims to be an assignee.

If genuine assignee, and obligor pays assignor, and assignor disappears, then obligor has to pay assignee (obligor would pay twice).

Court concludes that there was no assignment, K merely provided that 1st broker would pay 2d broker ½ after receiving fee. Assignment is where right is transferred.

In dicta no equitable lien on a promise to pay out of a specific fund?

Note 3b Hinkle Inn D assigned future earnings of present K to P. P agreed t D’s request to receive money from K. D doesn’t give all money to P. D goes bankrupt.

Court Corp held money in trust, and if its officers divert money, they are guilty of conversion. Not a debtor/creditor relationship.

Harpel v. Craig

A subsequent legal assignment will prevail over a precedent equitable assignment.

Barnes v. Alexander

“I will give you 1/3 of my fee”. Not present assignment but equitable assignment because assignment of potential future income.

If assignment of money due in the future on a present K, it’s a legal assignment, not equitable.

Is the income turned into a trust fund?

Barnes promised only if he received an identified fund that he would give the money.

There was no personal debt, it was a contingency. They were like joint-venturers, where 2d lawyer was taking risk that money would come. Just a fee sharing arrangement, therefore Barnes has equitable property right.

It is a familiar rule of equity that a K to convey a specific object even before it si acquired will make the contractor a trustee as soon as he gets title to the thing”

VRG Corp. Broker procured several tenants for LL. Agreement was for 6% of each monthly rental for the duration of leases. B was given 250k advance on commissions. Commissions would kick in after 6% aggregate rent equaled initial 250k advance; calculated that it would kick in in 1992. LL sold property and leases to , who knew about brokerage K but didn’t agree to be responsible. In 1992 old LL was insolvent and new LL refuses to pay commissions.

Did the broker K create debtor/creditor relationship or a lien on the rents?

    • If lien, 2d LL would be bound b/c he wasn’t BFP b/c had notice.

    • “Entitled to 6% of each nmonthly payment” doesn’t evidence a fund for commission to be paid from, therefore no equitable lien. Only creates contractual right, and 2d LL is free and clear.

Note 2 Oregon Mutual Just because you point to a fund, doesn’t create an equitable lien, the fund must be a trust that was created!!??? Apparently, you need to either:

                  1. the fund must be created by creditor’s efforts; or

                  2. the fund needs to be the sole source of claimant’s compensation.

    1. Interference with Intangible Property
      1. Copyright

Walker v. Forbers

Damages Look to profit made from infringement, and not from actual damages.

Profits come from Ads and Subscriptions which totaled 6,700k.

There was some apportionment of profit from the copyright infringement.

Court awarded 5k, which was much more than the license fee (500).

Profit remedy has deterrent effect.

      1. Trademarks

Maier Brewing

Π made and distributed Black and White whiskey.

 sold Black and White something else (not whiskey).

Ct said that direct competition between goods are not prerequisite for damages based on profits.

What Theory? is getting free ride on π’s good will and prestige. may dilute prestige.

Court mentions limits in accounting profits, if the can show that some sales were not attributed to trademark infringement.

      1. Ideas

Belt v. Hamilton commercially valuable ideas

Difference between ideas and © and TMs

              1. ownership right exclusive rights under © and TM.

              2. no ownership of ideas.

Commercially valuable idea was Amateur Hour on radio that had music made by school kids.

Idea person who told listener that he expected compensation if idea was adopted.

Sued for assumpsit / quasi K.


Why was this case a loser and the Belt case a winner?

  1. Belt was well developed and concrete with all the things thought out, and Smith’s idea was very general.

  2. Also you need element of confidentiality, and or expectation of compensation.

To best protect, need express written confidentiality agreement.

      1. Rights of Publicity

White v. Samsung

Who has right of publicity?

 A person whose personality has value.

NY law has loopholes that could be had.

Should court supplement statute with CL to combat loopholes?

    1. Breach of Fiduciary Duty

Wendt v. Fischer

Fiduciary Someone who has trust and duty to principal

Here, FD was from broker hired to assist in sale to the owner of RE.

FD Includes duty of full disclosure of all things that might be a conflict of interest.

Facts for TC establish that there was no better buyer was available (than broker), therefore no injury to P.

BUT Court says that it don’t matter, don’t have to show loss, just that F made profit. Therefore Realty firm was an accessory to F’s breach of duty.

    • profits must be held in constructive trust to P;

    • if can’t trace, then you can get an accounting, and then you a general creditor.

    • In addition, commission must be restituted, b/c you can’t gain from wrongdoing.


              1. Unnecessary for P to prove economic damage. All P has to prove that F made profit from breach of FD.

              2. Difference between tort and restitution Distinction between entity that made the profits from buying the building (Realty Agency) and agents who sold (agent).

Meinhardt v. Salmon

 was holder and solely name on legal title to lease; π had equitable partnership with .

20 year lease was to expire, LL goes to ; froze out π is new lease that was negotiated.

Π wants 50% of new lease!

Cardozo says,

“Joint venturers, like copartners, owe to one another while the enterprise continues, the duty of finest loyalty. Many forms of conduct permissible in arms length dealings are forbidden to those with FD. A trustee is held to something stricter than the morals of the marketplace. Not honesty alone, but the punctilio of an honor the most sacred, then the standard of behavior…”

Ammo for Dissent

Relationship may end after 20 years, but duty lasts longer?

SM of FD was relatively small piece of prop, new lease was for huge piece

Π got his 50% interest, but too bad, they went broke.

Beatty v. Gugenheim

B agent of G, is checking out land that P has options for, but discovers that land needs adjacent land to work. Breached FD and leases adjacent land with Perry, who is silent partner, without P knowledge.

B loses his ½, but what about Perry’s?

Is Perry BFP for value, if silent?

Even if Perry was innocent, and his name wasn’t on lease, constructive trust will be had over entire thing because Perry needs legal right.

Horn Ice

Π is ice co that uses frozen ponds to take ice from.

s are former EEs; while EEs, they lease special pond where ER gets his ice from, and quit to go into competition with former ER.

Rule An EE, who learns in the course of or by reason of his employ, that the premises where the ER’s biz is conducted are of peculiar value to this ER or one carrying on his biz, has no right without the ER’s knowledge to take the lease of those premises and hold them to the injury of the ER’s property.

Here The crucial fact that the s learned of the special and peculiar value to the π of the right to harvest, store and use the Mill pond ice b reason of their employ by the π.

Hypo In this case, EEs double crossed ER while still EEs. What if EEs quit before approaching owner of pond? Don’t matter, because gained info as EE.

Marcus v. Otis

s were officers at corp; didn’t seize corp opportunity, but borrowed money from corp to finance opportunity.

Court Abuse of FD; self dealing, they were acting as both parties, as borrower and principal, therefore any profits should be held in trust.

Burg v. Horn

Durand was slum lord corp. Durand is closely held corp, owned 50/50 by π and .

Durand made loan to for personal use; all interested parties assented to loan.

While SH of corp, were purchasing other buildings.

Should have offered opportunities to π? Did use of corp funds breach FD?

What’s the difference between here and Meinhardt?

  1. Here, got knowledge from outside and not from relationship

  2. physical building was outside scope of their relationship

    1. Suppose in Meinhard, LL offered building down the street and not currently leased building (outside scope of venture); because outside scope of venture, most likely no breach of FD

    • Usually these cases are not about the existence of FD, but to the scope of FD.

Brophy v. City Svc.

 was not in plain and clear Violation of FD.

 was EE of corp, a secretary, and received confidential info, i.e. stock buy back plan, and he bought some stock and made a killing.

Why is this not clear cut? B/c not injurious to corp; the injured was the SH he bought from. In Horn Ice, EEs were in direct competition. Here corp didn’t lose any money

Here, using FD, don’t have to show actual damage, but only the F profited from breach.

Walton v. Morgan Stanley

Stockholder derivative suit.

 is a merchant bank, investment advisor, who participates in M&A, bringing together offers and finance.

 is employed by Kennecot to find acquisition; and thinks Olinkraft is good, approaches Olinkraft and asked to see books; O complies b/c FD to SH to any potential profit.

Sends accompanying letter saying that its confidential.

Takeover never happens, but Johns Manville successfully acquires Olinkraft.

 uses confidential info and helps John Manville and buys some stock.

Did do anything wrong? No, had no FD to Olinkraft; it was an arms length dealing. They should have had an express confidentiality agreement (only got top secret stamp).

Dissent Implied in fact agreement, silence here was consent

Northeast General Did finder have duty to tell client that guy was not good to do biz with? No, finder has limited role than broker. Prof says, on ethically thin ice, inconsistent w/ current notion of equity. Cardozo didn’t want FD to be chiseled away.

Reading v. the King

During WWII, GB occupies Egypt; GB military law was in effect.

Reading was sergeant; accepted bribes to help smugglers go unmolested through city.

Reading was court-martialed; now civil trial, where GB is principal, Reading is F.

Does King have right to have Reading surrender profit?

Reading was sergeant was F that used his uniform to make illegal profits; therefore he’s liable for profits.

    1. Interference with Expectations

      1. In General

Zippertubbing v. Teleflex

Π is subcontractor on NYC K; π subKed to Surf, who subKed to .

No binding K until NYC inspected mfg place.

While inspecting ’s plane, says π is competitor and with the result that they K, and fully performs.

Court finds that violated implied duty to keep confidential info concerning π’s customer and tortiously interfered with π’s prospective Kual advantage.

In most cases, damage to π is same as profit to ; π can get either.

In NJ, accounting for profits, which is special form of constructive trust, is appropriate remedy for interference with K advantage.

Most disgorge profits made by tort.

In re Wilson’s Will

H murders wife. H has children from previous marriage. W’s will names H and his children specifically as beneficiaries.

Legal title passes under will.

Here legal title passes to murderer, but equity creates constructive trust no one shall profit from wrongdoing.

Husband is equitably disqualified, therefore inheritance must pass to next qualified heir.

What causes court’s discomfort? If H is disqualified, can’t pass through him to his children, but the will names them.

Decedent, the court feels that H’s children stand in the will b/c of relationship to H and not because of the natural affection of decedent’s bounty. Ct wants to disqualify them also.

Court remands back to TC to determine what W’s intentions were in naming H’s children to will; and best promote those intentions.

Several Loose Ends Suppose tenants by entirety, what should courts do?

Principles: 1. No man shall profit fromwrongdoing; but

2. There shall be no forfeiture of property to govt b/c of crime; therefore property of murderer shall be kept by him.

How do you apply these two together?

What if was insane?

In tort, if is insane don’t matter

In resitution, if is insane blocks disqualification.

Pope v. Garrett

Elderly lady on deathbed, and she wants to make a will.

Decedent asks lawyer friend to make will, leaving everything to her friend.

She has 4 sisters; 2 in attendance, and sisters prevent her from signing, thereby she dies intestate.

Court sisters are legal owners of intestate property, but sisters that were present should not profit from their wrongdoing, therefore their inherited property will be held in constructive trust. Trust doesn’t come from will (legal dox) but from equity

What about innocent 3d parties? Court says that they’re beneficiaries b/c of tortuous interference and whole of property is held in trust.

NY Expectancy Hutchins, is not a tort. Son/father were testator and father changed will b/c people said bad things. IF one profits from interference, good case for constructive trust (against good conscience to keep).

      1. Plaintiff’s Connection with Benefit Received by Defendant from Third Person

Patrick v. Metcalf

Π was assignee of boat charterer.

 was assignee of boat owner.

3d party is US govt.

Dispute arises out of transport of cargo

Prof speculates disagreement is due to custom and usage.

Π sues for assumpsit.

Rule To create a trust for π:

                  1. payment to must have extinguished π’s claim, thereby no recourse against payor.

                  2. must have asked and received payment in bad faith; and

Court holds that there is no trust. “In the case at bar, the π’s rights remain unaffected by payments made to .” Π’s remedy is normally toward payor

If there were 2 competing claims for payment, and govt paid wrong payee, can govt get it back? Yes, but what about voluntary payment? Even if threat of suit, not duress and made erroneously; b/c consideration for not bringing suit.

Hathaway v. Town of Cincy limits of rule

Statute provided fro reimbursements for getting volunteers for civil war; called for payment to county who was responsible for distributing to towns. County made mistake and distributed wrong amounts.

Underpaid town sues overpaid town.

Why does π town win?

County was agent of the town, funds seen as trust, where town was trustee.

Distinguishes county was give funds, seen as agent fro town. Towns had equitable title to this money, therefore when other towns were receiving the π’s money to the extent of overpayment, it was made by mistake and not voluntarily. If you could trace it…

Heywood v. Northern Assurance co.

Insurance policy was sold, and instead of paying premium, gave negotiable promissory note to agent, b/c agent paid premium. Note was negotiated to π. Ins co got into dispute w/ agent, fired him, and went to insured and demanded insured to pay premium to ins co, which insured foolishly did.

Action by π against ins co.

Rule Where 2 competing claims same fund, and fund obligor elects to pay one of the claimants, the other can’t maintain an action against one receiving funds.

Where 1 person procures a payment to himself of money that he knows is due another, the person to whom the payment was due may make a claim against the interloper.

  • An action does not fail b/c the payment did not destroy π’s action against debtor who paid money the money that was due to π.

Note 1 Sergeant v. Striker

Π sues confidence men who claim his reward

Court only uses Patrick’s 1st element of creating trust: doesn’t extinguish obligation.

Therefore no trust. But court goes on to state:

If a man goes to my debtor and impersonates me, and my debtor pays him, supposing he’s paying me, it is clearly money for my use; therefore I can:

                1. elect to sue my debtor for the debt, or

                2. sue imposter for money had and received (assumpsit)”…or

                3. sue imposter for interference with K (tort).

But, my debtor cannot give me a right of action against a 3d person, by paying him money which he claims a right to in opposition of me.

Cory v. Webber

Claimant was not π, it’s a counterclaim.

T&D owed money to Caldwell, and gave him negotiable note; Caldwell transferred to .

Π sued Caldwell and garnished T&D, who was believed to owe Caldwell money.

Garnishment sue debtor’s debtors for payment.

T&D should have asked to see note, it was negotiable!!!

When obligation is by promissory note, obligation is to holder of note.

T&D foolishly paid Corey

Webber, rightful owner of note, sues Corey.

Patrick elements:

  1. Does payment to Corey extinguish claim? NO

  2. Did Corey receive payment in good in faith? It would appear so.

Is this a voluntary payment? Yes, there was a waiver.

Court holds no unjust enrichment to Corey, and Webber can’t sue C for money

There is also the factor of changed position. They are almost a BFP, they received money in full payment of antecedent debt.

Simonds v. Simonds

Decedent guarantees to 1st wife that he’ll keep her as beneficiary of insurance policy for 7k as part of separation agreement; remarries and then policy lapses; thereafter creates new insurance policy. W2 is donee beneficiary

Decedent’s estate is bankrupt.

Does π have equitable lien on new policy?

An agreement for sufficient consideration to maintain a claimant as beneficiary of Life insurance vests in the beneficiary an equitable interest in the policies. This interest is superior to named donee beneficiary, even if innocent.

Here, it’s a new policy that is in question. It has been held that a mere substitution of policies, or even a substitution of ins cos, doesn’t defeat this equitable interest of one who has given valuable consideration.

Beneficiaries have been unjustly enriched by decedent’s actions.

Doesn’t matter that policy had been paid; constructive trust is created.

What’s difference between donee beneficiary and other type of beneficiary? Not a BFP?

Parsa v. NY

Π is physician who is employed at state hospital.

Express K, salary of 145k; but K is unenforceable b/c didn’t comply with formalities in statute.

Hospital is reimbursed by Medicaid for work that π did.

Π is not entitled to anything for medicine, no privity.

Hospital bill Medicaid, according to π’s work.

K is void, but π’s lawyer claims that hospital has received money from govt that included remuneration for services of doc.

Does doc have equitable lien to Medicaid’s payment?

No be/c insofar as the statute refers to charges made by the provider which may include reasonable physician’s services, it states a formula for computing the provider’s charges, it does not set aside fees which the doc is entitle to receive as a matter of law.

Chapter 17:Benefits Obtained Through Misrepresentation

Impossible to disentangle restitution and tort damages

Ie. Heading damages and restitution compared

Point traditionally, to recover for fraud, intentional misrepresentation of fact that causes injury.

used to have to be a fact about the past, but the issue has arisen, can a promise (statement about the future) be basis for action in tort?

  • If present intention is not to comply, may be a tort c/a

  • If never intended to keep promise, then it’s a tort.

    • But there has to be proof!!!, beyond non-performance.

Fraud is tort, damages are to make you whole as before the tort.

Suppose sold you watch that was mislabeled a Rolex.

Rolex is worth 500.

Knockoff worth 100, sold for 250.

Under K damages, suppose warranted that watch was Rolex, Damages? Breach of K.

What is paid is irrelevant: Damages are what real Rolex is worth, minus what he received is worth.

Tort Damages the “Out of Pocket” damages.

He parted with 250, and received 100, therefore damages are 150.

If you establish breach of K, you get K damages; if you establish tort, you get tort damages.

What’s difference between the 2? No scienter requirement in K claims. In torts, state of mind matters ( a deliberate lie, or a statement so reckless its equivalent is a lie.

Looks like torts are harder to prove than K. What makes torts more valuable?

Punitive damages

NY punitive damages not available for fraud (even though K damages amy be higher).

Some things in tort are admissible whereas they wouldn’t be under K law.

  • Parole Evidence Rule may prevent maintenance of oral misrepresentations in K claim, ie in a merger claim; but in torts, it will not be prevented.

  • Statute of Frauds, oral statement may be unenforceable in K claim, but is not applicable to tort c/a’s.

Can a promise to do something in the future be a fraud case?

Yes, but only if it was made w/ the present state of mind not to perform the promise.

Should it be a jury question?

Court requires additional evidence of scienter, besides evidence of non-performance.

Evidence of state of mind.

Measure of Damages? Is the actual pecuniary loss sustained as a direct result of the wrong. “the difference between the value of the thing bought, sold or exchanged and its purchase price or value of the thing exchanged for it.”

    1. Damages and Restitution Compared

Film Life

Rule Court won’t allow false representation to be fraud, if it’s so contrary to written K, that it shouldn’t be believed. E.g. if you sign two year lease, you can’t rely on agent’s assurance that you can break lease.

Hammond v. Pennock

Π and to swap RE.

π, RE plus personal property

π, RE, stating that Re was rich in timber and water. Sold 30/acre, but worth 50 cents / acre.

Π want’s recision.

Complication had resold some property (Ked, but not conveyed yet) to 3d party. 3d party is BFP.

 committed fraud in inducement, therefore voidable title, therefore 3d party may keep title.

(doesn’t BFP at this point have equitable title and not legal title?, b/c hasn’t been conveyed yet. Wouldn’t π have equitable title also? Thereby π gets it, no?)

Here π may be assigned the rights that received from sale.

Requirement If defrauded party wants to disaffirm K, must rescind at earliest possible time.

If he hesitates, he loses right to rescind, but doesn’t lose rights to tort damages.

Here 3 month gap. Court says in this specific circumstances, 3 months was not unreasonable time.

Scienter element is not necessary in action in equity for recission (fraud in inducement?), therefore even innocent misrepresentation will be subject to recission.

Seneca Wire

 promised that stock would be listed on NYSE, but wasn’t (bad faith misrepresentation)

π sues in assumpsit or, had and received (action at law)

 says that action at law, therefore requires scienter.

Rule Fraud in inducement (action in equity), therefore rescission may be maintained in equity by:

              1. Proving that representations were false, and misled π into making purchase. Misrepresentation doesn’t require scienter; and

              2. The person who relied on a material misrepresentation may rescind the K, if he acts without delay.

2 types of rescission

                1. Rescission at law – where all that is wanted is money

                2. Rescission in equity – where what is wanted is court action, e.g. where courts need to revest title, e.g. for RE, therefore, it’s an equitable power.

    • There is not distinction between the natures of the proofs for the 2 types of rescission.

    • There does exist a distinction between an action in rescission and the action for damages based upon fraud and deceit.

      • Fraud and deceit – in order to get damages, must prove willful and fraudulent misrepresentation, and causal connection between representation and damages. There is an Affirmance of K, and an action fro damages.

      • Rescission – in order to get disaffirmance, don’t need causal connection between misrepresentation and restitution. There is a disaffirmance of K, no damages, but a restitution of the consideration.

Bodenhame v. Patterson

Π bought farmland, and partially put in a road.

 intentionally misrepresented that there was water on land.

Π found out that well was dry, so wanted rescission of land purchase.

  • Disclaimer of innocent misrepresentations will be binding, and will bar disaffirmance.

  • Disclaimer of intentional misrepresentations, as here, when Owner knew well was dry, but didn’t tell agent, who innocently said that owner didn’t know, was intentional b/c owner wanted to create impression that well was not dry; will not bar disaffirmance.

Can you combine Rescission and restitution, with Damages for Fraudulent Misrepresentation?

When a K is rescinded, the parties should be restored, as nearly as possible, to their situation prior to transaction.

What if parties can’t be put in their prior positions? B/c of expenditures by π?

  • In rescission of K for sale of land, general rule allowed for restitution for improvements to land; and

  • “when the person defrauded has made expenditures as a result of the fraud, which were reasonable under the circumstances, these may ordinarily be recovered, so far as they have been rendered fruitless because of the deceit. In rescission, the π’s expenditures under the transaction are naturally recoverable.”

  • How to Reconcile?

WE HOLD THAT where rescission is based on intentional misrepresentation, and where innocent party, before learning of fraud, makes reasonable expenditures in reliance of bargain, those expenses may be recovered on rescission.

But what if was not unjustly enriched?

“It appears to have been the purpose of the court to place the in status quo regardless of any loss πs might suffer, but it was the πs, not the s who were entitles to be restored to their former position. This is the purpose of rescission. Equity is solicitous that the innocent party who rescinds the K be not made to suffer”. Sounds like reliance damages.

Court says Real difference is not between action at law and equity; but K Affirmance and damages,

or disaffirmance and restitution.

Note 1. CBS – Action for breach of warranty (K) doesn’t require reliance on misrepresented facts.

Breach of K doesn’t require reliance (causal connection)

Tort claim may require reliance (causal connection)


Requirement for prompt action of disaffirmance in executory Ks

If Victim of fraud disaffirms K and seeks restitution, need to act promptly; but if π hasn’t performed yet, then you can sit back and wait to be sued. Can plead as affirmative defense.

Earl v. Saks 5th avenue

Barbee wants to buy mink coat as gift for π, but only if cost is up to 4k.

Π falls in love with coat that cost 5k; tells to pretend to sell to Barbee for 4k, will give additional 1k; agrees.

Barbee thinks he’s buying coat for 4k.

Rescission of K

Did store make material misrepresentations?

Did store cheat Barbee?


Regarding Gift from B to π

  • A gift can be rescinded if may through fraud or by mistake.

  • A failure of donee to reveal material facts when he knows that the donor is mistaken is fraudulent non -disclosure.

  • The donor is entitled to restitution if he is mistaken as to the identity of the gift.

Here Barbee is mistaken as to identity of coat, and identity of the essential characteristic of gift. That coat is woth 4k, and that gift is given soley by him.

Regarding Purchase By B from

  • Representee can rescind if thing expected is worth less than reasonably led to believe.

  • Representee can rescind where he obtains something substantially different that what he was led to expect.

  • Where representee obtains exactly what he expects, the social interest in the stability of transactions must be weighed in the interest in not having one intentionally take advantage of another.

  • misrepresented price of coat to B Here social interest in stability of transaction is overridden by interest in not having seller make intentional misrepresentations which mislead a would be donor into the erroneous belief that he alone is purchasing and that his donee is to receive from him a fully paid gift.

Ct There was fraud in inducement in the sale of coat. You don’t have to prove pecuniary damages. Just have to prove that you got something materially different that what you wanted. Barbie’s intentions when purchasing were to get glory, and this was frustrated by misrepresentations of Saks. It diminishes his standing, to have another had to subsidize gift. His sense of being giver is deprived, and that was what he bargained for.

Sale K is voidable and properly rescinded.

    1. Nondisclosure

Fegeus v. Sherrill

House has termite infestation; seller of home doesn’t disclose termite damage.

Can buyer rescind purchase of home b/c of non-disclosure?

Law Non-disclosure alone is not enough. Court quotes 50 year old case. 50 years ago, no need to disclose defects unless FD or immediately dangerous.

What is the subject matter?

You can get a c/a for concealment.

Concealment is the intentional and effective hiding of a material fact with the attained object of creating or continuing a false impression as to that fact. Affirmative suppression of truth must have been with the intent to deceive.

Davis v. Resinger

π Ks with rice merchant.

π learns of ’s mistake in grading rice, and Ks with him to take advantage.

Non-disclosure of grading mistake of rice merchant, which went directly to terms of K.

Merchant discovers mistake and doesn’t perform K.

π sues for damages.

It would be fraudulent to take advantage of this mistake.

Sum Up of Non-Disclosure

General Rule Ordinarily, party has privilege of non-disclosure, and π has burden to show exception; ie. when there is a duty to speak, such as FD.

But when is there a duty to speak?

              1. anything approaching a confidential or fiduciary relationship.

ie. Wendt v. Fisher, chap 6 supra where agent was used to sell property and sold to himself.

              1. Where subject matter was RE, where condition was harmful and couldn’t be discovered by inspection.

Modern view is that it just can’t be discovered by inspection.

              1. ½ truth – where if party says something true, but it’s half the story. Ie, that rood was re-shingled 2 years ago, give impression that house has nice new roof, but it was done shittely. This is a ½ truth.

Mackintosh v. Matthews

Water stain in house for sale

Rule If buyer and seller were at arms length, no duty to disclose.

If there is a special relationship, there is a duty to disclose.

Is bank in fiduciary relationship? NO!

But, court says that there is a special relationship because bank is seller and financier, because lender in its own interest would not finance mortgage if it exceeded value of house. This would weaken value of mortgage, therefore buyer had reason to rely on absence of any reduction of value.

Prof says this is pushing the envelope.

Dissent says that commercial lender doesn’t have special relationship.

NY courts do not go as far as the principal case.

    1. Disaffirmance in law and Equity

Distinguishes executory Ks, and partly performed Ks.

If π has not given anything and has not received anything; then not necessary to rescind anything, because has power to avoid executory K by pleading affirmative defense.

Rescission is almost always coupled with restitution, where you are trying to get something back from . Means that K was performed by π.

Loverin v. Wedge

π committed fraud in inducement, used phony name, address, and promissory note that he didn’t intend to keep.

π gave auto dealership trade in car and cash. Auto dealer found out later and tracked down π and repossessed auto, then resold car to .

C/a is conversion, an action in tort.

Who has legal title? π

What about fraud in inducement? Means voidable title.

  • Dealer could revest itself of title, but must return consideration. Here, when repossessed auto, didn’t receive legal title because didn’t return consideration.

  • When dealer sold to , didn’t pass good title, and was guilty of conversion.

  • Dealer’s rescission was uneffectuated.

Craig v. Hadley (insert)

π Had bank account with bank; on certain afternoon, deposited check; same day bank closed down because insolvent. Agents working at bank knew of closing.

Duty to Speak Bank’s receipt of commercial instruments acted as fraud to π b/c bank knew that it could never give money back.

Affirmance – Disaffirmance

If π sued for tort (fraud), what disadvantage? Just becomes general creditor.

Ct of App π had opted to rescind deposit; so long as there is money, Jessel’s Bag, π may use equitable lien to get rescission and other general creditors have not ground to object.

Rescission is remedy in rem (in the property) and is better than general creditor.

Note 2 Buyer purchases goods on credit by misrepresenting finances. Title passes, but it’s voidable. Seller has couple of remedies.

                  1. Replevin – goods had and received, get goods back in specie, (legal claim, but specific performance; equitable lien)

                  2. Assumpsit – value of goods; you’re a general creditor.

American Sugar v. Fancher

π sold huge amounts of sugar.

 committed fraud in regards to its credit standing.

In action for fraud in inducement, if still had sugar, could replevin sugar back

sold sugar to 3d party for its accounts receivable

Case holds legal remedy of replevin is no longer available, but via tracing, accounts receivable are direct result of sugar, and therefore there will be an equitable lien on AR, as a secured creditor.

Note At early CL, fraud in inducement (replevin) was recognized only in remedy,; where fraud in fact was at law. CL, before merger, adopted equity rule of replevin into CL, thereafter being CL rule and not just equity.

Suppose that there had been no fraudulent misrepresentation. Sugar was bought and buyer becomes insolvent.

What remedy does Seller have?

just general creditor b/c no fraud. No fraud in inducement, just breach of K.

If seller sells w/ just personal guarantee, just GC.

But if buyer defrauds, S has remedies of replevin, constructive trust, EL.

UCC § 2-702 Overrule Fancier rule; If B is insolvent, S can get goods back w/o misrepresentation, if S acts within 10 days; unless buyer made a written representation of solvency within 3 months before delivery.

Bankruptcy Code Can use replevin and constructive trust against fraudfeasor’s bankruptcy’s trustee, but must make claim within 10 days of receipt by B. State UCC should be interpreted to no equitable remedy under § 2-702 if B resold goods.

Prof says don’t see why there is no more constructive trust.

Janigan .v. Taylor

Π – SHs

 – were directors that bought π’s stock

 bought stock for 400k and year later resold for 700k.

π asked if there was any change in state of corp, s said no, π then sold them stock


  1. Tort remedy for fraud, where one is casued to buy something that one would not have bought or would not have bought at that price; remedy is the difference between real value of property at date of sale and the price paid for it, and in addition, such outlays as were legitimately attributable to the ’s conduct.

  2. Fraud in inducement, where one is induced to convey property to the fraudulent party; the remedy is a constructive trust.

Affirmance? Difference between value of stock and what was paid for at time of transaction. Subsequent increases in value are disregarded.

Dissafirmance? We want the stock back (replevin). If finds that you sold to 3d party, if traceable, replevin, constructive trust. If not traceable

Rule of Evidence if Factfinder doesn’t believe witness, can’t assume opposite of what they said

Rand v. Webber

Oral agreement for sale of farmland, land is bisected by public road.

Fraud seller is drawing up deed, omits 10 acres from deed.

At title closing π gives money, but only receives ½ of the property.

Π doesn’t want to disaffirm, but wants money judgment representing price of the 10 acres he didn’t get; wants part of purchase price back.

Damages for Fraud in NY difference of what he gave and what he got. Could this be the same? Yes, therefore possible can’t get anything in fraud.

To get damages for assumpsit (restitution), you have to rescind K, unless it was a divisible K.

Assume Land π bought was equal to amount given. Remedy? None, SOF, it was oral

Reformation of K (equitable remedy) if K through duress, mistake, or fraud; could be reformed to reflect what was actually agreed.

Wheelan v.Schumacher Very difficult to determine right outcome!!

Land tract 1 Green purchases and:

  1. assumes 2k mortgage from Pan. Green forges satisfactions, and
  2. Obtains 1600 mortgage from NW, G forges satisfactions and
  3. obtains 1800 mortgage from Harper, G forges satisfactions and
  4. obtains 2k mortgage from Wheelan, G forges satisfaction

Land tract 2 Same fraud

Marlins was one ME of tract 2 and gave G, 2200.

G used 2k of this and paid off first mortgage to Pan.

Does M have superior equitable title in tract 1? Where is his equity to jump over others in line?

Court uses equity of tracing, to jump equity line, substituting M for Pan (constructive trust).

Courts grant subrogation, even though it doesn’t like to use these words. Is this fair?

Is M’s equity cut off by other BFPs?

When Pan’s mortgage was paid off, 2d ME had legal title to tract 1.

2d ME was BFP 1. Notice? NO

2. For Value? YES

Prof thinks all ME are BFP, and M can’t trump all of them.

Ettelson v. Met Life

Insured had 4 life insurance policies with .

Πs are beneficiaries of insurance policies.

Insured died within 2 year period of contestability regarding facts on life ins application; after 2 years, can’t claim fraudulent inducement.

What about non-fraudulent misrepresentations? In fraud inducement, don’t matter, no scienter requirement.

Federal court allows juries to determine Fraud in Inducement defenses, even though it has equitable roots, and is equitable in NJ, whose law is in effect.

NJ Still separates equity and law courts. So if beneficiary made claim for breach of K claim in law court, Ins co had to got to equity court to defend action.

  • Ins co lawyer fucked up, b/c when he removed, now it’s a jury trial, where if in NJ’s equity court, it would have been heard before judge.

NY Doesn’t follow Fed. Equitable defenses are tried by Judge, not jury.

  • Here, if you were lawyer for beneficiary, try to remove to Fed.
    1. Remedies Upon Affirmance: Standards of Tort Liability

HYPO Borrower makes loan application w/ credit references. Creditor relying on credit report, makes loan.

Creditor’s c/a against credit report? K?, no, but may have fraud action

Requirements of scienter are not needed in avoidance and rescission (mistake, fraud). Damages are loss of bargain, out of pocket expenses.

Ward v. Taggart

CA adopts NY rule: Out of Pocket Rule

Π purchases 70 acres of land at 5/acre; land is worth 5/acre.

 falsely represents that he is exclusive agent; he’s just person, he buys land from owner and sells to π, and makes profit.

Is going to get away with it? Under tort fraud, no damages

Can waive tort remedy and sue under quasi K (resitution of unjust enrichment),

It may be better to sue for quasi K, than tort.

Dress Shirt v. Hotel

Π was lessee of commercial space in ’s hotel. When lease had 5 years left, vacated premises, but kept paying rent. Assignment and subletting of lease needed LL approval. T brought potential new T, LL refused saying would never rent to new T; T received release from lease fro 30k. LL who had been secretly negotiating with new T, signed new lease immediately after release for more rent.

Fraud? Statement that LL would never lease to new T.

Did LL have right to arbitrarily refuse new T?

Under CL, LL has discretion. NY, if LL refuses w/o reason in residential sphere, T is released from lease.

CtofApp ruled material misrepresentation.

Material Breach:

NY Out of pocket expenses. Here π got release from 60k obligation fro 30k. No out of pocket damages.

Rescission Barbee v. Earl; no need to show pecuniary damages.

If rescind release, new T becomes T’s sublessor, and T gets excess rent.

Distinguish between statements of fact and statements of opinion. Facts are actionable, opinions are not.

Great Batch

Innocent misrepresentation

Negligent misrepresentation

Intentional misrepresentation

3d party beneficiary relying on information

Negligence To create a negligence c/a, need duty, and suppliers will be held to have a duty if their biz is in biz of providing information, for the guidance of others in their biz.

Considerations: biz supplying guidance to other are non-adversarial when dealing at arms length;

Here, court found that they was no special relationship b/c not in the biz of supplying info.

Note 3 Johnson v. State Ct finds special relationship (not necessarily in the biz of supplying

info), where info can be predictably relied upon by the hospital, hospital is negligent. Here hospital told family members of patient that she died. Family contracted funeral services and such. Found out that not family member who died.

Daly v. Blood

Promissory Fraud – recognized c/a

Can’t get around SOF for negligent promise, b/c it’s a tort (fraud) and SOF don’t work in torts; any false promise is actionable where no intent to keep it.

Calloway v. Manion

Horse swap

Π receives horse w/ physical defect, but made innocent misrepresentation of fact.

Courts treat as misrep of fact.

3 c/a

              1. Express warranty – seems to be in breach of express warranty, but K provides sole remedy. Since π did not seek remedy in express warranty, nor found remedy failed of its essential purpose, no breach of express warranty/

              2. Implied warranty – no inspection waived implied warranty on things that inspection would have revealed.

              3. Fraud in inducement: Misrepresentation – doesn’t require scienter

                1. Why not rescission?

                  1.  no longer has horse

                  2. π’s horse is foal (pregnant)

If can’t get rescission, like in this case, you can get damages for tortuous misrepresentation.

To get damages for misrepresentation (tort), where damages are value of what one parted with and what one received.

Minority view Restate of Torts

To get damages, don’t need scienter.

Majority view including NY

To get damages, need scienter;

Problems of Agency

Harnischfeger v. Coats If fraud is done within scope of agency

If your biz requires agents, how do you protect yourself?

With K, stating “here are the warranties, qualities, etc… Sales agents makes not representation other than what is printed in front of you”.

      • Thereby agent would be acting outside agency if makes other promises.


      • Victim of unauthorized misrepresentation, K is void, b/c principal wouyld be unjustly enriched by agent’s actions.

      • Victim may have no c/a , but he would be able to rescind K. Remember, must rescind within reasonable time.

Bunn v. Monarch Life

Issuance of Life insurance.

Application insured checked married

Insurer doesn’t want to pay b/c he’s not married technically.

Ct said misrepresentation doesn’t require scienter; but here being married is not material.

Π says that ’s agent knew of π’s plans to travel, and agent checked “no travel”

Rule Agent is agent of insurer and not insured, therefore principal (insurer) is imputed with knowledge. Insured is not imputed with knowledge on application, even if attached to policy, b/c public policy that it’s K of adhesion, and bad to impute looking over, most people don’t.

NY Insured is imputed with knowledge on application, b/c they’re annexed to policy, has chance to look at it; therefore if false, must let insurer know.

Majority Rule Follows principal case.

    1. Further Problems of Restoration Upon Disaffirmance

Gilbert v. Rothschild

Π brings action at law fro damages from tortfeasor.

 pleads affirmative defense of signed release.

Π replies that alleged release was procured by misrepresentation; specifically π used ’s doc who downplayed severity of injury.

 said if you want to rescind release, return money.

Suppose π said it was all spent on medical bills… No guarantee that π wins lawsuit.

Note 1 Fraud in fact, the K is void and you don’t have to return the money.

Fraud in inducement, rescind K and have to return consideration.

Note 3 In fraud in fact, if π introduces evidence that caused him to misunderstand the nature of the K he signed, then burden is on to prove the validity of K.

In Fraud in inducement, burden is on π to show invalidity of K.

Schank v. Schuman substantive and procedural component

Π purchased from over several years, wagons and wagon parts for which he paid cash.

Π later discovers was paying bribes to purchasing agent to induce transactions.

Brings action.

Procedural all π wants is judgment for money; action at law, not equity

Substantive Money had and received (fraud in inducement rescission); π had benefit of wagons.

Unjust for π, after receiving all these wagons, to receive all the money back.

If make claim of fraud in inducement, and π had consumed what he received under the K; in order to reclaim money would be to show unjust enrichment to , in the form of disparity in value of wagons and what he paid for them.

Π argues Sirkin v. 14th St. Store

Seller bribes purchasing agent, but bought on credit.

Ct held that b/c seller’s fraud, doors of courthouse were closed to seller for payment.

If π had discovered the fraud, π shouldn’t have to pay. B/c of this π feels that outcome should be same, if π didn’t discover fraud until after payment.

Even though its an action at law, has history of equity, and there are no punitive damages in equity, therefore only unjust enrichment!!

Note 3 Suppose π can’t prove value of what he received. Court will assume that price was inflated by bribe.

Note 4 Principal can also recover from agent, via accounting. Remember FD don’t have to prove pecuniary damage.

Guggenheim v. Angevine

Π was owner of 50 barrels of whiskey which were bonded in govt warehouse, b/c failed to pay govt tax.

Π sold whiskey to X; X misrepresented solvency; sold to ; paid tax on them.

 is not BFP (had notice).

Can π replevin whiskey w/o paying back tax to ?

Analogy Same as trespasser who wrongfully converts a chattel, and afterwards enhances it’s value by labor bestowed upon it. The wrongdoer in such a case is bound to account to the TO for the value in its changed condition, and TO’s recovery will not be limited to value in condition at time of conversion.

Notes If π needed court of equity (unlike above where π went to CL court) for RE; court would have wanted some reimbursement. Equity will also protect wrongdoer.

Chapter 18:Benefits Conferred In Bargain Transactions

    1. Defendant in Breach

      1. Introduction: Damages and Restitution Compared

Acme Mill

1st K – 1.03/bushel to π

2d K – 1.06/bushel to 3d party

Delivered to 3d party, none to π.

Price then fell to 1.00/bushel

Π’s theory, want to disgorge ’s profits, b/c unjust enrichment – making profit because he broke promis.

Damages are expectation interest.

Did selling wheat to 3d party cause breach to π?

No, b/c could’ve gotten wheat somewhere else. K didn’t specify wheat’s origin, therefore could’ve gotten it from marketplace and fulfilled π’s order.

2d K had no nexus with 1st K.

Assume output K, here 2d K would have disabled 1st K.

Note 1 For sale of RE, could recover downpayment and profit. (Why? B/c unjust enrichment and trust?) More than K right, property right.

Remedy of specific performance turns K rights into property rights.

Therefore in principal case b/c no SP, not holding property in trust.

Note 3 Restatement of Agency we aren’t property, therefore in a service K, ER doesn’t own EE’s time, only has K rights. Only recovery would be portion of consideration given to EE for his time used elsewhere.

Exceptions If agent was a Fiduciary and took biz that was for principal, e.g. Redding v.Crown ( British Sergeant in Egypt)


Profits made b/c someone breached K are not held in trust.

Covenant not to compete: Ct treats “ goodwill” as type of property.

 is reselling goodwill, therefore depriving π of his purchase of goodwill, therefore must give back.

Doherty v. Dolan

What is measure of damages for failure to convey marketable title to land?

Most states Expectancy damages, or in alternate

Reliance damages (downpayment and cost of transaction). No expectancy unless willful

FMV = 10k

B/c breached, π can waive K damages and seek rescission and restitution to status quo (reliance damages)

This way, this remedy puts π in better position that if gotten K damages.

Court Unjust enrichment is a worse evil to be prevented than rescuing a person’s bad biz judgment.

Note 1 Buyer can recover restitution of 5k

Note 3 In NY, which follows rule of limited damages for ’s breach SP of such title as vendor can convey, minus price to compensate for deficiency.

Herman v. Handler

NJ statute is exactly same as NY CL rule.

Land sale K failed to go through b/c condition wasn’t met, not b/c of breach; therefore no recovery of π of title search.

      1. Restitution

Clark v. Manchester

K remedy of wrongfully discharge.

Damages would be unpaid part of salary – what he could have gotten in similar employment.

Restitution from Rescission restitution would be value of services (wages) that he did.

Algerm Blair

K damages would have been zero, or less than zero.

Gains prevented were smaller than cost avoided.

Ct. He can waive K remedy, and sue in restitution for quantum meruit (market value of services rendered) minus payments already made.

Oliver v. Campbell

Once fully performed obligation, exclusive remedy shall be damages for K price.

Part performance and then breach by , measure is quantum meruit.

      1. Problems of Rescission: In General

Tichmor Bros

Π was selling picture postcards to merchant on credit.

Deal π promises merchant () exclusivity on postcards.

 discovers double cross.

Seller sues for purchase price.

Material Breach of K?

If yes, don’t have to pay for postcard.

Court decides this is too harsh, outcome determinative reasoning.

Notes In NY, this is a material breach.


Prof says facts are interesting

Hypo Farmer harvests oranges earlier to get premium on 1st oranges of the season.

Hires shipper, gets quote from FL NY

              1. overnight – 100/ton

              2. reg 7 days – 25/ton

Shipper screws up, arrives late, luckily market prices haven’t fallen

Ct holds partial failure

Example of total failure is: Shipment of fur coats worth 1,000k, to be shipped following day. Hires security guard at 500/day to guard. Guard doesn’t show up, but no one steals furs. WH owner sues for restitution. Here it’s a complete failure of consideration.

What if money was paid 7 days later?

Substantial performance? Damages have nothing to do with remedy.

Law is incapable of taking moderate position depending on when money was paid (before of after service).

Last para


Man issued group life ins in 1953.

9 years later in ’62,he has first accident and 1st claim

Hospitalized for 6 days cost 107.

What is co’s response? Policy had lapsed in 1959; but π still paying premiums.

Π wants to rescind K and restitution of all premiums paid since beginning.

Court said Benefit of bargains was protection and not actually paying out any particular claim

    1. π had value for premiums

1959-present π didn’t have no value for bargain

      1. Problems of Rescission: Sales of Land

Gihon v. Morris

Π is seeking to recover purchase price; bought land with covenants of title.

Potential title defect; TR is widow w/ 5 children, their interests were transferred.

Previous will had transferred not to widow, but to someone else.

Court You still have covenants, and peaceful possession.; therefore equity has no jurisdiction.

Court wants finality, if title is defective, then there is a remedy at law; don’t come to equity to destabilize title when these problems may never occur!!

Note 1 If discovered before closing, restitution and out of pocket expense. Once deed is passed, no warranties to marketable title, just warranties to land.


      1. Problems of Rescission: Sales of Goods and Intangibles

      2. Loans

    1. Plaintiff in Breach

      1. Service Contracts

Stephens v. Beard

Material breach and forfeited all contractual rights; but conferred some benefit

Does he get restitution?

CL No!! “no encouragement has ever been given to that loose and dangerous doctrine which allows a person to violate his most serious engagement and then draw the injured party into a controversy concerning the amount and value of the benefits received.

Schwasnick v. Blandin Learned Hand

Modern or progressive rule.

Party who has made material breach is not outlaw, and may have restitution of benefit without windfall to non-breacher.

When the promisee has not performed, he obviously cannot recover on the promise, provided performance in a condition. Yet when the default is not wilfull and deliberate, it is generally agreed that he may recover so much as his efforts have actually benefited the promisor.

Furthermore, if the PE has performed so far as he has gone, and the PR breaks his promise, the PE may abandon the K and sue for restitution in quantum meruit and not value of benefit to PR.

      1. Land Sale Contracts

Maxton v. Lo Galbo

Buyer made 10% down payment on 210k land sale K; and buyer reneged.

Seller sold to 3d party for same price, but incurred additional expenses of 12k.

Can non-breaching party keep down payment if deposit > damages?

CL breaching party is precluded from courthouse; court’s door was locked to wrongdoer.

Critics of this rule included Corbin.

UCC § 2-718 Says S can automatically keep as much of the deposit up to 20% of selling price, but not more than $500; but if seller can prove actual damages, can keep up to actual damages.

Here, UCC doesn’t control b/c land sale;

where deposit is near 10%, no unjust enrichment;

but doesn’t talk about greater than ~10%.

If much greater than 10%, there is more pressure to provide some relief.

Bean v. Walker

Suppose home price is 15k; loan is 15k. PMM.

Suppose ½ of mortgage has been paid, MR still owes 7.5k; value of home increases to 44k.

Here no title closing, long term land sale K, where buyer pays off loan and then gets title.

Seller brings action for ejectment.

Usual way to sell RE sign K, title search/financing, title closing.

Sometimes seller is financer, Purchase Money Mortgage.

Usually, if buyer defaults, foreclosure, lender gets his debt, borrower gets surplus.

If B gets kicked out, loses property; but B has paid ½ of loan.

Court holds Seller is trying to have the same as PPM. As a matter of law, its different, but substance is the same.

Remedy for breach ought to be comparable.

S must foreclose, quasi ME will be paid the unpaid Mortgage price.

NY is granting restitutionary measure of damages.

Restitution for party in default usually happens in construction Ks.

      1. Construction Contracts

Nees v. Weaver

K for putting on roof.

Ct finds no substantial performance.

Quasi K remedy –

  • If you achieve substantial performance, you can recover K price minus cost to complete work.

  • If you fail to achieve substantial performance and performance is not returnable in specie; you are not entitled to recover the quantum meruit (reasonable value of their work and materials) unless you can show appropriation or use amounting to acceptance.

  • Merely by continuing to live in house, is not a waiver to object to roof, therefore no voluntary waiver of the preclusion of restitution.

    1. Impossibility of Performance

I.e. Fire destroys everything, no substantial performance, quasi K recourse.

Carrol v. Bowersock

Π agreed to install floor in warehouse, and did.

WH burns down without fault of either party, therefore there was an impossibility of performance by π.

Those parts of π’s performance that became incorporated into WH including the tearing out of floor was benefit to WH owner; therefore builder can get quantum meruit.

Those items that were not permanently attached to warehouse, ie wooden forms, and rim rods, that haven’t yet been attached to building; destruction of these things are not benefit to WH owner and therefore risk of builder; therefore no restitution.

Careful distinction Depends on Permanent Benefit to Owner.

Auto Insurance v. Model Family Laundry

 deposited fur coats w/ storage co, who also agreed to insure.

WH burned down, insurance co subrogated.

Not addressed is whether owner can sue for value of fur.

Can storage co have quasi K for value of services before WH burned down?

Test Does benefit conferred on accrue incrementally?, or all at once when furs are returned?

Court finds for latter.

HYPO What about dog kennel, and dog has heart attack and dies there?

Chapter Eight

1st part in breach court goes out of its way to stretch benefit to enlarge recovery.

2d part π in breach π gets restitution if there is a resulting enhancement to .

3d part no one in breach, no good guy, no bad guy no consistency!!!

Here court adopts narrow definition of benefit.

Unenforceable Contracts: The Statute of Frauds

      1. In General

Doctrine of equity that protects expectation interest.

Doctrine of part performance equitable doctrine.

  • Where SOF prevents π from enforcing land sale K, equity requires restitution (quantum meruit?)

  • Where SOF prevents from enforcing land sale K, and π wants restitution, law can’t help π get back downpayment.

Woodbury v. Gardener example of successful attempt to get equitable relief for SOF

Deal between son-in-law and dad.

Son agreed to take over management.

What did S do to fulfill part of his bargain?

              1. paid taxes on biz

              2. replaced fences and invested in farm.

In the end D refused to sign deed.

Court calls this equitable fraud.

 would be unjustly enriched; SOF is designed to prevent perjury. Where you have overt acts that strongly corroborated π’s version of facts and acts are hard to explain w/o parole agreement, equity will push aside SOF.

Note Equitable relief can’t be used to get legal relief.

Burns v. McCormick unsuccessful use of part performance

Π was promised deed if took care of .

Π took care of for 5 months, died, but never wrote will.

What did Woodbury do that π didn’t do? Did π do any incipient acts of ownership? No, they looked like guests, nothing overt, nothing unequivocally referable to oral K.

Note 1 Restitution, not out of pocket expenses; benefits are recoverable under quasi K, but loss they sustained goes without requital; can’t get recovery.

Restitution is remunerable notwithstanding SOF, b/c equity.

Reliance is not recoverable, b/c legal remedy, therefore SOF is in effect.

Rhea v. Allison

Seller of land makes oral sale to π; π pays part and takes possession and makes improvements.

S thereafter conveyed land to , who now makes an action for ejectment.

Π seeks enjoinment of ejection and seeks account for improvement and purchases money; in the form of a lien.

Deposit money is bargained for benefit. Improvements are not requested or bargained for.

Suppose improvement do not rise to level of part performance, Those actions may be recoverable under restitution (quantum meruit).

If man is put into possession of land by owner upon verbal sale, which owner refuses to complete, and man makes improvements in expectation of owner’s performance, equity will demand compensation of owner to man, and will treat land subject to lien. Same for purchase money.

Remember 2d chapter

is not party to oral agreement

is 3d party, who purchased property from party to agreement with π.

is not on notice of π’s improvements

But, is not BFP b/c BFP for RE has to give present value, and not for value (here, was for PED, a debt.

Keystone Hardware

Vendee doesn’t want to buy land no more.

Vendor wants specific performance.

Vendee suing to get deposit back.

Can VR get SP? Is there any memo that evidences agreement?

Yes, It’s a binder, an agreement to agree (not binding);

Afterwards an oral mortgage is agreed, does it satisfy SOF?

 Incomplete memo fails SOF, its effect is as if agreement was oral; therefore bars specific performance.

What about vendee’s restitution?

 Here VE is hiding behind SOF, but VR wants transaction to go through.

Money paid in part performance even of an oral K for the purchase of land cannot be recovered if the vendor is willing to convey on the performance of the conditions by π.

Kearns v. Andre

Oral agreement for sale of house, but buyer hasn’t signed K. B now makes demand on S, that if wants N to sign, must make certain improvements. Seller improves, but buyer walks away.

Quasi K, or Reliance Damages?

No valid K, b/c SOF; reliance damages are legal remedy.

Did they benefit B? If so, can sue quasi K.

Improvements were made at request of B, and for benefit of B. But it didn’t actually benefit B, b/c B reneged. B is estopped for claiming that they didn’t benefit B.

      1. Constructive Trust: Transactions Between Plaintiff and Defendant

Berenato v. Gazzaro dispute over RE

Rosario and are bros; agreed to convey w/o consideration; oral promise to reconvey when asked.

If R don’t reconvey, has CL SOF defense

Would have recourse? Constructive trust? No b/c can’t do indirectly what you prohibited from doing directly; therefore R don’t have to give back.

Here, R did reconvey.

R’s creditors think they’re being screwed; thinks transfers in fraud of creditors (CL action).

Court Creditors have no grievance; pursuant to oral agreement, G couldn’t enforce agreement b/c of SOF, but there was a moral obligation; it’s an equitable remedy.

Note 4 What happens if legal title holder goes bankrupt and is not equitable title holder?

Does Bankruptcy trustee have greater rights than equitable holder? NO.

Metzler v. Metzler

Mom conveyed reversionary interest to some and daughter and kept life estate.

Son reconveyed back to Mom b/c mom was worried about wife.

Mom was supposed to reconvey, but conveyed to daughter instead.

Under traditional law: If A B, with oral promise to reconvey, promise void b/c of SOF.

Court If there is a confidential relationship, equity gets foothold and creates constructive trust.

Restatement of Trust § 44 Constructive Trust if:

                1. transfer procured by fraud, duress, under influence or mistake; or

                2. transfer at time of transfer was in confidential relationship with transferor.

Cest Que Trust New rule will probably swallow up old rule b/c almost all of these types of transfers will be from confidential relationship.

      1. Constructive Trust: Defendant as Purchaser from Third Person

Hamburg v. Barsky

 approached π, whose #14 street lease was about to expire, wanted #16.

 said if negotiates for both, better bargaining position.

#16 not available and signs lease with #14.

Court was sued for unjust enrichment. Found confidential relationship, which breached; and court impressed a CT, even though got property from LL.

Clark v. Lovelace

Π and intended to be tenants in common, each putting in ½.

Π didn’t have his ½; bought property by himself with his own money.

Result? Court says no dice.

What’s the difference between here and Hamburg?

In Hamburg, π relied on ’s representation; had preexisting property rights which he lost due to ’s intervention. Here, π lost his expectation interest but was no worse than after deal.

      1. Constructive Trust: Plaintiff as Intended Donee of Third Person

Masino v. Sechrest

Mom put up $ and purchased RE; directed title be drawn to eldest daughter and husband, orally holding property in trust for infant siblings.

Daughter repudiates trust.

Unjust enrichment from confidential relationship; therefore constructive trust.

Who was victim of unjust enrichment? Mom or other siblings?

Court says its mom, and therefore estate should get it;

But it is more equitable for siblings should get it, b/c it was intended for them.

Reoux v. 1st National Bank

H + W; will each other as survivor; wills divided equally to Son and Daughter.

H is dead first; W’s will leaves only to D.

Court says All W’s stuff can go to D; but stuff derived from H, divide 50/50.

Olliffe v. Wells

Donovan dies, leaves all property to clergyman, who distributes as he remembers her wishes to be.

Will is void for indefiniteness) beneficiary must appear in dox.

Should court impose a constructive trust on intended beneficiary?

No, we’re going to allow property to pass intestate.

What’s difference between here and Mussimo?

There, there was a bad guy.

Here no one, no unjust enrichment. There’s no foothold from equity. Let CL take over

Unenforceable Contracts: Illegality

      1. In General

Seagirt Realty v. Chazanoff

Whole scheme was to circumvent law and equity’s benevolent hand won’t butt in.

Π conveyed to 3d party in order to avoid creditors, for π’s benefit. Π goes bankrupt. 3d party conveys to , for π’s benefit. conveys back to π, but π loses deed. No consideration in anyof the transfers.

Π seeks to remove cloud of title.

Rule of unclean hands bars causes of action founded upon illegality or immorality.

If had simply promised to convey, and didn’t, then unclean hands would bar π’s action.

Here, not trying to enforce a promise, but is seeking to establish documentation of present ownership. has present legal title. Action isn’t founded upon illegality or immorality.

Towner v. Berg

Fed gives veterans 100% mortgage loan guarantee for home purchases.

Son was veteran, and bought home and got mortgage for parents as front man for him.

Dad pays for everything, closing, mortgage, taxes, etc.

They have falling out, son says screw you!!!

TC found Transaction was a means of financing, and the title vests in π.

Remedy of constructive trust is denied when purpose of taking veteran’s name was to obtain the guaranteed loan.

    • Court balances pub policy of unclean hands and equities of this type of case.

    • Thinks equitable lien of only mortgage payment, which is not expressly precluded, would be a good remedy. Therefore no forfeiture.

Note 1 If veteran tells mom to have title taken in his name, and has no scienter to be wrongdoer, not considered wrongdoer.

      1. The Special Problem of Municipal Corporations

Hague v. City of Philly

Π worked on bridge K; worked on site for 6 weeks

 commissioners told him to move location after promising him that they would pay for extra work.

Π sues , but law says that commissioners can’t order new bridges w/o approval of board.

No remedy for π b/c knew the law; if he didn’t listen to commishes, he would have had legal remedy.

Note re: Chapter 7: Schank v. Shuyler

What’s NY law now? If guilty of deliberate illegality, has to return all money; if not guilty of deliberate illegality, may keep payments already made.

NYTel v. Town of Hempstead

Town entered into nego with π to put in lighting fixtures on telephone poles.

No agreement was entered into; tel co puts on lighting fixtures

Tel co demands removal.

Quasi K, tort (trespass to chattel). Can waive tort remedy and sue in quasi K.

Chapter 19:Mistake in Bargain Transactions

Different types of mistakes in transactions.

Mistake in assumption of fact Mistake of external realities

Mistake of expression No mistake of external realities, but mistake when putting it on paper. The paper contains or leaves out something. Remedy is reformation.

Mistake in performance No mistake in external facts or writing, but in performance. I.e. ins co mistakenly pays proceeds after policy has lapsed. No rescission, just restitution.

    1. Mistake in Assumptions of Fact

      1. Mutual Mistake

Dorsey v. Jackman

Assumed seller of real property had good title, but didn’t.

Buyer wants restitution of purchase money after closing of property. Deed was quickclaim.

No warranty for real property

In personal property, there is an implied warranty of title.

For real property, there is no implied warranty.

Why? For Land, there is a paper trail to inspect and you can check it out.

For personal property, there is no paper trail, court gives more protection here.

If parties expressly contract who will bear the risk, mistake will not grant rescission regarding the risk.

Bryant v. Pember (insert)

Purchase of cow.

Buyer made promissory note for healthy cow.

Unbeknownst to parties, cow was sick and then died.

Before the maturity of promissory note, if negotiable, and sold for value, the buyer of note becomes BFP.

If sold after maturity, its an assignment.

Risk can be allocated by custom.

Note 1 Unless seller is merchant, with respect to gods of that kind; today the result would be the same.

Castillo v. Sykes

In re bank: book value of bank shares was 136/share; sold shares.

After the sale, found out that EEs of bank were embezzling and each share was worth 60/ share.

Mutual mistake as to value of shares.

Court asks? 1. Has risk been allocated? By custom or agreement?

2. What effect does this risk have on the exchange? If highly material, most modern courts grant rescission.

This court takes narrower view. Mistake has to go to substance or subject matter.

Note 1. At CL, had to go to factum (the thing); now with the merger, no need to have harsh result of principal case.

Harbor Insurance

Π got jury verdict for 3.3mil; π is destitute.

 appealed, π filed for summary Affirmance, but that’s a rarety.

Settlement offer, but drags on, and finally settles.

Unbeknownst to either party (gimme a break) the court entered order the day before for summary Affirmance.

Π seeks rescission on mistake on fact.

What are the risks being allocated?

Π argues risk of not decided decision.

Court says that if you agree to settle pending appeal, you are bound by the results. These are known uncertainties; Conscious ignorance, note 9

“In order for a mistake to have legal significance, and to constitute a basis for invalidating a compromise, it must be based upon the parties unconscious ignorance; it must not relate to one of the uncertainties of which the parties are conscious and which it was the purpose of the compromise to resolve and put at rest.”

Restatement 2d Doctrine of Mutual Mistake

A party bears the risk of a mistake when

                1. the risk is allocated to him by the agreement of the parties; or

                2. he is aware at the time the K is made that he has only limited knowledge with respect to the facts to which the mistake relates but treats his limited knowledgte as sufficient; or

                3. the risk ir allocated to him by the court on the ground that it is reasonable in the circumstances to do so.

Limited Knowledge as Conscious Ignorance

“Even though the mistaken party did not agree to bear the risk, he may have been aware when he made the K that his knowledge with respect to the facts to which the mistake relates was limited. If he was not only so aware that his knowledge was limited but undertook to perform in the face of that awareness, he bears the risk of the mistake. It is sometimes said in such a situation that there was conscious ignorance.

Vickerson v. Frey

π bought house and believed that house could have basement apartment.

Town ordinance required 8’ clearence, but basement had 7 ½ clearence.

Unallocated risk.

Court refused to give rescission. Why?

Could have remedied, was not material; it was not prohibitively expensive to fix.

Note In chap 7, innocent misrep if material was grounds for rescission; “but for” test

Here, avoidance for mistake requires that the mistake of both parties relate to “a basic assumption on which the K was made” that would have a material affect on the exchange; material means large discrepancy in the economies of the exchange.

Aranovich v. Levy

Π fell down stairs in hotel. No serious injuries; π settles for nominal amount.

Later, its disclosed that injuries are more serious.

Π wants to reopen tort case; but must get settlement set aside.

Risk allocated? Yes, by express agreement.

But court holds that settlement can be set aside.

Case sets border on torts and K

Note 1 An exception to general rule of risk allocation.

There are social policy considerations; courts have decided as a matter of policy that normal rules of K don’t apply; courts have decided by equity that if minor injuries turn out to be major, settlement will be set aside.


Equitable doctrine, π had legal right to claim, but want to use equitable relief to have judgment set aside. Therefore laches applies.

      1. Unilateral Mistake


 owns large tract of land; land has timber and sells timber rights.

Owner assumes that timber has been cut, but it hasn’t.

Buyer sees timber and they make a deal.

Did , by scratching out timber exception from K, become legally/ contractually obligated for the timber? Yes, but asks for equitable relief for unilateral mistake.

Rarely will court rescind for unilateral mistake.

Baltimore County v. Ruff

Π is public works (school building or something) K bidding, neglects to include cost of labor costs; it was clerical mistake.

This is in a category of its own!!! Why?

B/c party making bid has no leisure time to consider subbids, b/c they are last minute. It’s a fruitful breeding ground for mistake.


 wanted to sell stock, broker told them it was worth some amount believing that it was one stock when it was another. Sold stock. Made mistake regarding stock, b/c names were similar.

When non-mistaking party has changed his position in reliance of K, it’s too late to seek rescission.

Defense of Change of Position.

Bell v. Carrol

Non-mistaking party acted in bad faith in that it knew that mistake was being made.

7 shares of stock at local bank with market value of 300/share w par value of 1/share.

Non St. John’s lawyer doesn’t understand par value and sells it for par value and not market value.

When mistake is discovered seeks rescission.

Court holds that the minds of the parties didn’t meet, and there was no K.

Did Bell ever have legal title? Court says equity is required to rescind.?

Separate transactions

              1. K to sell stock title didn’t pass; legal remedy OK

              2. transfer of stock valid title passed, and you need equity to rescind.

Note 4 A says to B, “I offer to sell you my horse for 100.” B knowing that A intends to offer to sell his cow, not the horse for that price, and horse and cow is a slip; and B says “I agree”.

Restatement says no K. Prof likes this one.

Restatement 2d says K, but voidable for fraud.

Kleinburg v. Rattete

Unknown to buyer is an underwater stream; signed K.

Buyer wants to back out of K and get downpayment back. Seller wants SP.

Unilateral mistake of buyer, but b/c specific performance would be hardship on buyer, buyer just loses downpayment.

Mistake in Expression

      1. Basic Issues: Parol Evidence and Statute of Fraud

Hoffman v. Chapman

B/c drafting error, more or less land was conveyed than intended.

Legal title passes to grantee, but

Court uses parol evidence to show intention

Remedy is reformation (equitable)

Equity will reform a written K to conform to real intention of parties if evidence is real clear.

Parole Evidence rule is inadmissible to vary or contradict the terms of a K.

But, equity will not enforce this rule if mistake, fraud or accident occurred in the making of instrument; and will admit parol evidence even if instrument is within SOF.

Equity will reform a K not for purpose of relieving oppressive bargain, but to enforce the actual agreement of the parties to prevent injustice.

Wilson v. Dean

LL assured leased house would be furnished. T saw that it was not in lease.

T gets mad when house isn’t furnished.

When you know K doesn’t have term, but sign anyway. You can’t reform. No mistake in expression.

Wirtx v. Guthrie

Cannot reform an executory K, b/c no unjust enrichment.

Can reform executed K, because someone has been unjustly enriched.

“Where land is the subject of the erroneous instrument, the reformation of an executed conveyance on parol evidence is not precluded b/c SOF, for otherwise it would be impossible to get relief…

Where mistake in executory K is alleged, parol evidence may be admitted in opposition of SP, ”

Court says this doesn’t apply to executory Ks.

Fridman v. Newman

Over phone, makes oral agreement to purchase 10 share of stock, is quoted certain price.

Π makes confirmation but give lower price. signs at the lower price.

Π sues for not paying oral price; sues for not selling at written price.

Is the confirmation the integrated K?

Confirmation was intended as memo of oral agreement.

PER doesn’t apply unless writing is integration b/c then it only evidences agreement.

Held not integration.

Doesn’t satisfy SOF, b/c writing is inaccurate.

Therefore, K is void and not reformable, b/c executory.

We will not do indirectly what SOF prevents us from doing directly.

Can’t use equity to enforce a bargain, just prevent unjust enrichment.

Use equity to reform executed K; can’t reform executory K, just void it.

Legal remedies to get benefit of bargain.

      1. Reformation of What? Search of the True Agreement must prove what they intended.

Mead v. Westchester

2 buildings on property; insurance policy on wrong building; didn’t have any interest in wrong building.

His building burned down.

No meeting of the minds, can’t get reformation to something that wasn’t agreed to.

Whole thing was misunderstanding as to inducement of K, coverage of what building, therefore rescission and restitution.

Hanes v. Roosevelt

Typographical mistake on annuity policy regarding rate of return; but should have known to look at the tables.

To reform an insurance policy on the ground of mutual mistake, the party seeking reformation must establish a mutual mistake of fact which was in existence at the time the policy was executed. He must prove that both parties intended to say a certain thing, but b/c of mutual factual mistake, said something different. Proof must be clear and convincing.

Courts are reluctant to remedy unilateral mistake in inducement.

Reformation that contains a mistake in K?

Does it have to be a mutual error; ie a typo that

      1. Fraud or Inequitable Contract

Mistake in Performance: Restitution

      1. In General

Simms v. Thick

Π lost or misplaced receipt and paid twice for what he owed.

Mistake was his, unilateral.

Do you think court should give relief?

negligence doesn’t serve as a barrier.

In mistake in performance, you are not… nor… but simply asking for restitution.

B/c payment was made under mistake, makes it not voluntary.


Collision insurance policy.

By misreading damage, overpaid.

We’re not interested in culpability of beneficiary!!

To get equitable relief for a unilateral mistake, there must be

              1. mistake so great as to make K unconscionable;

              2. mistake is material

              3. mistake must have been, regardless of the exercise of due care.

Court said overpayment was, and required restitution.

National Life Insurance

Action by ins co to recover proceeds of life insurance policy.

Alleges paid $ in ignorance that insured concealed medical condition fraud.

Was there deliberate concealment?

TC don’t have to prove scienter, follows Simmons v. Vick .

NY reverses, question of fact for jury; absence of fraud can keep money

What’s the distinction with Vick?

Waiver? Uncertainty in condition of facts, but paid anyway a mounts to waiver.

Simmons v. Vick had to do with performance of K and not for formation. Here, it’s the creation of K; here payment waives all those defenses related to inception of policy.


Mistaken payments relating to inception of K are waiver, but further payment can be voided.

Phoenix Indemnity

Burglary theft policy.

Burglary large policy, 10k;

theft by EEs small policy, 2.5k.

~5k stolen, ins co don’t know who did it.

Conduct investigation, but still mystery and pays full amount.

Subsequently, EEs are arrested and confesses.

P sues for excess.

Assumption of risk there is no mistake; but knowledge of the circumstances

But, money can be recovered back. Why?

Public policy if couldn’t recover back, would delay insur co payment.

Willard good to review chap 7

Hypo 1 π purchases ½ interest in a boat and full value is 100k.

misreps that he acquired for 110k, and FMV is 95k.

In action for fraud, NY, 5k remedy.

Hypo 2 “I agree to sell you this boat for exactly what I paid for it” or “10k less than I paid for it”.

Here value of boat is irrelevant. Mistake in performance.

Suppose paid 100k for it; π overpays 10k.

      1. Land Sale Contracts

Drug v. Woolridge

Deed, if describes by metes and bounds, apprx acreage is not warranteed.

Mistake in inducement.

What remedy? Depends..

              1. If price is calculated by acre, considered divisible K; ie if sale of beef, if scale is off, pay what is really there.

              2. If price is calculated as lump sum price; suppose competitive bidding, where not multiple of acres, seen as whole K and not divisible.

See Vickerson v. Frye

If mistake in inducement and no assumption of risk, depends on how big the mistake was:

                1. if w/in 90%, no remedy, b/c immaterial

                2. if mistake is material, then you’re entitled to rescission, but no abatement.


K to buy RE fro fixed price, but inducement was representation that rental value was fixed amount.

Π is seeking specific performance w/ abatement. No allegation of scienter.

Court what you are seeking is counter claim for damages on innocent misrep. In NY, you need scienter. No scienter remedy is rescission or avoidance.

Mistake of Law

Central Turnpike co. v. Smith

Toll road lets doc go unpaid b/c thinks can’t charge.

Later finds out that he should have charged.

Sues for back tolls.

Maxim Mistake of Fact Remedy

Mistake of Law No Remedy

If someone asserts legal rights, and you let it go; its voluntary!!!

Belloff v. Dime

Barrens owns RE, on death gives to wife.

Subsequent to making of will, had child.

Under law, child inherits some fraction as if no will; W’s title is defective.

W sells to Burkhard, who thinking he owns land in fee, mortgages land.

Π buys from B and pays of mortgage.

Π was mistaken that B gave him fee title paid mortgage.

π wants restitution on payments to bank for mortgage. This is a mistake of law, b/c bought land and paid of the mortgage.

Old caselaw Relief Will be denied for mistake of law

Modern Statute Relief will not be denied b/c of mistake of law.

Prof Says If today, same result but different reason. Primae facie case for restitution, but may have affirmative defense BFP.

Bank had valid mortgage debt, but lien was defective; once bank is paid, innocent purchaser for value.

Wayne County

Gimber Bros.

Suppose mistake of law; by lease entered into 19955, in calculating rent, took into account expenses to maintain common areas only 6 days a weeks. 1955 had Sunday closing laws.

In 1976, NY changed that, and G could open 7days now.

LL wanted additional $; G made some payments, but stopped.

LL wants back rent; G wants back what it payed.

LL’s action for reformation Lease can’t be reformed; G agreed to pay x amount, LL agreed to maintain at all open hours.

G’s action for restitution Voluntary payment.

Prof says Courts probably looked at equities (unfair charges).

Chapter 20:Mistake in Donative Transactions

    1. Action by Donor

Gilkas v. Nickols

Marriage agreement was considered a K, promises.

Heart Baum statutes breach of promise to marry gave no c/a.

Here, this type of condition precedent is different than damages for breach of K.

Condition subsequent to ownership of ring.

Applies to gifts solely for contemplation of marriage.

Here donee broke engagement; if DR breaks agreement, equities would be with DE b/c DR is preventing fulfillment of condition; therefore no unjust enrichment.

Note 1 NY overturns heart baum statutes w/ statute. Not only is ring returnable, it doesn’t matter who broke up marriage, b/c courts aren’t capable of deciding who’s at fault.

Turyford v. Hatchenalj

2 sets of children Grace + Alonzo, and the Twins

2 properties farm and timberland.

Conveyed to G+A w/o consideration.

Parents intended to convey farm but not timberland, but conveyed both.

G drafted deed.

J finds voluntary gift of farm.

Gift is by nature unilateral, and grantee’s conduct except acceptance plays not part in fixing rights of parties. Mutuality of mistake is only important if there is mutuality of obligation (K).

Donor, if made mistake regarding amount of gift to be given, can get restitution.

    1. Action by Donee


If give gift with executory promises, transfer is valid but promises are invalid for want of consideration.

Ie. Give land to daughter with full warranty. Warranties are invalid.

Horsfeild v. Getdicks

Niece lives with aunt and uncle. N gets married; A + U say take land over there to build home.

Legally land is owned by U; house also b/c he owns land.

Prof says, almost like promissory estoppel case.

Once donee spends money, incurs inconvenience in reliance of promise, court says inequitable for donee to give back.

Here, reliance was substantial, they built a house on the land.


Man remarries, but had 2 children from prior marriage.

Land trust for 2 children, remarried and has new kid.

Trust for 2 kids via insurance policy.

Insurance policy for wife.

H thinks that trust is for all 3 kids, equally.

H wants to augment children’s policy with W’s policy, then dies.

B/c of DR’s mistake in inducement, thinking that its’ for all 3 kids being material, it’s subject to rescission and not reformation, therefore W is direct beneficiary.

If DR intended to give 3 children equally, and he was mistaken with terms of trust, the other 2 kids would have been unjustly enriched, and therefore DR would have been entitled to rescission.

Hoehnek v. Ferguson

Equity will not aid volunteer.

Donee didn’t give consideration.

If donor screwed up deed, DE can’t drag DR into court, b/c no consideration. It’s up to DR to reform gift instrument.

Why was W, in previous case, elevated above volunteer status?

Non-vested right is a property right, b/c right was taken away, elevated above volunteer.

Here, Mom made deed to son, its was inaccurate, therefore Deed is a nullity.

Had DE sued DR above, no dice.

But now DR is dead

Will Ricky gets everything, including disputed land?

2 types of volunteer.

              1. inter vivos volunteer

              2. testamentary volunteer.

What happens?

Court says deceased went to grave thinking inter vivos gift was OK and donative intent was still there; court will enforce inter vivos gift.

But, if donative intent no longer there, no relief. Was there regret?

Hunnel v. Hunnel

Single individual makes life insurance policy, beneficiary is mom.

He gets married and intends to change B to fiancé.

Ct Reluctant to change beneficiary unless donee did everything they could to change but ran up against wall.

Here, didn’t mail, therefore didn’t do everything in his power.

Another possibility if designated beneficiary had orally promised that would hold in trust for π, ct would grant relief based on constructive trust.


Facts fall short of traditional, “all you can”. But court feels for decedent. Equities lie with decedent.

Can’t change beneficiary of ins policy by testament or will.